A Tax Fact from The Tax Institute at H&R Block

In today's corporate America, changing jobs is commonplace. Cutbacks, layoffs and corporate ladder climbing can all lead to a search for other employment. But the dreaded job search has an upside - tax deductions! Job search expenses can be deducted as miscellaneous itemized deductions if you look for a job in the same field at essentially the same level as the one you left. And, the expenses are deductible even if you don't get the job.

You can claim unreimbursed job-seeking expenses as long as the amount of all miscellaneous itemized deductions is more than two percent of your adjusted gross income (AGI). Job seeking deductions are also subject to the overall limitation on itemized deductions based on AGI threshold amounts. To figure your deduction, on Schedule A, subtract two percent of your AGI from the total amount of the miscellaneous itemized deductions. Your AGI is the amount on the 2008 Form 1040, line 37.

Just what deductions can be taken?

Useful job search tips
To qualify for a deduction, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

• If you have not held a job in that trade or business for an extended length of time, your job search may be considered for a new trade or business and your deductions may not be allowed.
• If you held a college internship or job while in college and your search is for a job in the same trade or business, you may be able to take the job search deductions.
• If you are just out of school and had no similar paying jobs in school, you are looking for a job in a new trade or business and your deductions will not be allowed.

Thinking of a vacation?
If you take a personal trip and happen to do some job hunting while on that trip, only the expenses specific to the job hunt that you would not have otherwise incurred in the destination location will be deductible. Travel to and from the location and lodging and meals while there will not be deductible. Best advice: Avoid mixing job-hunting with a vacation.

New: Help for the jobless in 2009
Though it won’t help when filing your 2008 federal tax return, the jobless do get a little help in 2009 from the 2009 American Recovery & Reinvestment Act (a.k.a. the 2009 Stimulus) that was recently signed into law.

Unemployment benefits will temporarily increase by $25 per week in 2009 and the first $2,400 of unemployment benefits received in 2009 is now exempt from federal income taxes.

Also, the 2009 Stimulus extends to Dec. 31, 2009, the date by which an individual must exhaust his regular unemployment benefits in order to qualify for the extended unemployment benefits. Previously, the original ending date was March 31, 2009. Extended benefits continue for 20 weeks, plus an additional 13 weeks in high unemployment states.

COBRA premiums
As many of today’s jobless know, COBRA coverage allows you to keep insurance coverage provided by your former employer, but often at a much greater cost to you.

Now, for workers laid off between Sept. 1, 2008 and Dec. 31, 2009, the government will subsidize 65% of your premiums under COBRA for up to 9 months. 

And, for those of you that were laid off between Sept.1, 2008 and Feb. 17, 2009 who did NOT sign up for COBRA, will receive an additional 60 days to do so and receive the 65% subsidy.

Contact your former employer to find out if you qualify for the new subsidized COBRA insurance.

There is a phase out for this provision, however. The 65% subsidy phases out for those whose modified adjusted gross income (MAGI) for the year is $125,000 ($250,000 for couples filing jointly). The benefit is fully phased out when MAGI equals $145,000 ($290,000 for joint filers). Individuals who premiums are subsidized but who are partly or completely phased out of eligibility for this benefit based on their MAGI are subject to recapture of all or part of the subsidy. The recaptured amount is reported as an additional tax on the individual’s tax return.

This Tax Fact is brought to you by The Tax Institute at H&R Block.

To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com

As always . . . everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.