Publication 4128: Tax Impact and Job Loss

Publication 4128 is a free resource from the IRS that explains how job loss can affect your tax filing. It clarifies how various benefits and payments you receive during unemployment are taxed and offers guidance on potential tax breaks and deductions you may qualify for.

Who Should Read Publication 4128?

This publication is beneficial for anyone who has recently lost their job or anticipates a job loss. It's particularly helpful if you:

  • Are receiving unemployment compensation.
  • Received severance pay.
  • Are considering early withdrawal from your retirement plan.
  • Need to adjust your tax withholding due to reduced income.

Do I need to pay taxes on unemployment benefits?

Yes, unemployment compensation is considered taxable income.

How are taxes withheld from unemployment benefits?

Generally, some federal income tax is withheld from your unemployment benefits. However, you may need to adjust your withholding if the amount withheld is not enough to cover your tax liability.

What happens if I withdraw money from my retirement account after losing my job?

Early withdrawal from retirement accounts typically results in a 10% penalty on top of income taxes owed. Publication 4128 explains exceptions to this penalty for job loss situations.

Can I deduct the cost of COBRA health insurance premiums?

While COBRA premiums are not pre-tax deductions, you may be able to deduct them as an itemized deduction if the total cost of health insurance premiums for the year exceeds 7.5% of your AGI.

How do moving expenses relate to job loss?

If your move is directly related to a new job you obtained after losing your previous job, you may qualify to deduct your moving expenses on your tax return. Publication 4128 details the requirements for this deduction.