How Changing Jobs Affect Taxes
A large number of America’s working-class were laid off or furloughed and had to find a new job due to the pandemic. Having a change in careers will affect the way you do a lot of things, including your taxes. It’s important to understand everything that should be taxed, and what is considered a deductible when you’re transitioning from one job to the next.
Starting a new job, or gaining a new source of income adds a number of changes to your taxes for the year.
Separation Pay and Unused PTO
After leaving a job, you may find that you have some vacation hours and unused sick days. Your hours will be calculated into your final check. This, along with any other severance pay, must be taxed and filed accordingly.
If you receive unemployment, you must also document your compensation during tax season. Unemployment benefits are not exempt from being taxed.
These forms of payment should be taxed when they get to you, so by filing them, you may be eligible for a larger refund.
The Dangers of 401(k)
Too often, we’ve heard the stories of clients who fell on hard times or went into retirement and withdrew their 401(k) money. The reason why this is a risky choice is because the money you receive is also taxed. Most people fail to pay their 401(k) taxes and end up with a heap of debt.
Failing to pay taxes can result in penalties and high-interest rates, which can come out to more than you withdrew. Your 401(k) is for you to use, of course, but it’s best to use it wisely if you have no other source of income.
You can even accrue tax penalties for retiring early (55 and younger).
Expenses and Deductions
There are itemized deductions that you can qualify for from job hunting or transitioning into a new job. If your new job is in the same line of work as the previous one, you can deduct expenses such as printing and sending your resume, fees for outreach agencies or temp agencies, as well as travel costs.
Relocating can be a pain and also very expensive. If you’re relocating for your new job, then you may be eligible for deductions.
Filing Multiple Tax Forms
Any income that you receive must be filed. As such, if you work for Company A for 10 months of the year, then work for Company B for two months, you still need to file what you made for those two months. This is also relevant for anyone that receives unemployment or is self-employed.
Being a contract worker, even if it was a temporary position for a few weeks to a month, does not make you exempt from filing your income.
Owing Back Taxes While Starting a New Job
Knowing that you owe back taxes from unfiled years, you should seek protection to avoid penalties from the IRS. You may experience inconveniences in your new career, such as wage garnishments. If the IRS sees that you have an income, they will take it upon themselves to decide what you can afford to pay. It’s one of their most aggressive collection tactics.
You can avoid garnishments and bank liens by becoming compliant before starting your new job, or as soon as possible. If you can’t afford a payment plan, or you don’t believe it’s possible to pay off your debt, you can apply for the Fresh Start Program. This program provides tax debt relief to eligible applicants. However, the IRS has expanded the program to accept more qualified applicants since the pandemic.
How to qualify for the Fresh Start Program
- Click here to complete our brief questionnaire
- Consult with one of our Resolution Officers
- Enroll in Fresh Start!
Any new or systemic Liens and/or Levies will also be suspended for the time being.
For taxpayers who are considered “seriously delinquent”, the IRS will suspend any new certifications for the remaining period. Any taxpayer who falls into this category in reminded and encouraged to enter into an Installment Agreement or apply for an Offer In Compromise.
The IRS will not forward any new delinquent accounts to private collection agencies at this time.
Taxpayers have until July 15, 2020 to verify to the IRS they are qualify for the Earned Income Tax Credit or to confirm their income. If the taxpayer is unable to verify their credentials or provide appropriate documents for this credit, they are encouraged to notify the IRS before the deadline. No cases will be denied this credit for failure to provide requested information until July 15.
Case workers will continue business as usual. However, most case work will be conducted remotely (video/over the phone conferences). Any requests for documentation sent by the Office of Appeals should be responded to in a timely manner to ensure a smooth process.
The IRS will continue to take the appropriate measures to stay compliant and protect the applicable statutes of limitations. In situations where certain statutes may be compromised, taxpayers are encouraged to extend such statutes. Otherwise, Notices of Deficiency will be issued by the IRS and similar actions will be pursued to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.
Practitioners are reminded that PPS wait times may be significantly longer, depending on staffing levels and allocations going forward. The IRS will continue to monitor this as situations develop.
“The IRS will continue to review and, where appropriate, modify or expand the People First Initiative as we continue reviewing our programs and receive feedback from others,” Rettig said. “We are committed to helping people get through this period, and our employees will remain focused on these and other helpful efforts in the days and weeks ahead. I ask for your personal support, your understanding – and your patience – as we navigate our way forward together. Stay safe and take care of your families, friends and others.”
Learn how easy it is to qualify for tax savings.
