Almost ten percent of Americans were unemployed in 2010. But being out of work does not excuse taxpayers from filing income tax. The IRS recognizes that the loss of a job create tax issues.

Here are some tax tips and answers to tax questions for unemployed taxpayers.

Is Severance Pay Taxable?
Yes, severance pay is taxable in the year that you receive it. Your employer will include this amount on your Form W-2 and will withhold appropriate federal and state taxes. See Publication 525 for additional tax help.

Is Accumulated Sick Pay and Vacation Pay taxable?
Yes, annual or vacation pay, and sick pay are calculated as wages by your employer and will be included in your Form W-2.

Is Unemployment Compensation taxable?
Yes, your state unemployment insurance benefits (up to 26 weeks) and your extended benefits (up to an additional 13 weeks) are taxable. You may choose to have 10% withheld for federal taxes by completing Form W-4V.
The State will provide you with a Form 1099-G prior to January 31st of each year, showing the amount of taxable benefits paid in the prior year. See Publication 525 for additional information.

Is there a COBRA Health Insurance Continuation Premium Subsidy?
Workers who have lost their jobs may qualify for a 65 percent subsidy for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation premiums for themselves and their families for up to nine months. Eligible workers will have to pay 35 percent of the premium to their former employers.
To qualify, a worker must have been involuntarily separated between September 1, 2008, and December 31, 2009.
More information on the COBRA subsidy is available from the U.S. Department of Labor.

What about gifts of Cash and Property from family or friends?
Generally, the person who receives the gift is not liable for any taxes on the gift. If the gift produces income like interest, dividends or rent payments, the receiver would be responsible for taxes on that produced income. Each year there is a specific maximum amount that may be given that will not create a taxable event to either the giver or the receiver. Gifts in excess of this maximum may be subject to gift taxes by the gift giver. See Publications 17 or 950 for additional information.

Is Public Assistance or Food Stamps taxable?
No.

When will I get my final W-2 from my employer?
Your employer must provide your Form W-2 by January 31st after the close of the calendar year.

What if my employer filed bankruptcy or went out of business, how do I get my W-2 form?
In either case the employer must file and report your wages and withholding on a Form W-2 at year’s end. If you do not receive your Form W-2, try to contact your employer or their representative. If you are unsuccessful, the IRS can assist you in filing a substitute Form W-2 using your records. A good precaution is to keep year-to-date records or pay stubs until you receive your Form W-2.

If I sell assets like stocks, bonds, and property, are they immediately taxable?
Not necessarily, however the sale of such assets should be reported. If you have a gain on the sale, it may generate an income tax liability. You should review your overall tax situation and make sure you have paid your taxes as required to avoid any estimated tax penalty. More tax help and additional tax information on estimated tax is in Publication 505.

What can I do if I owe taxes and cannot pay them?
Contact the Internal Revenue Service as soon as possible to request a payment plan. Communication is the key to minimizing problems.

Is special assistance available on unresolved tax matters that create hardships?
Yes, if you are experiencing economic harm, a systemic problem or are seeking help in resolving tax problems that have not been resolved through normal channels, you may be eligible for Taxpayer Advocate Services (TAS) assistance. You can reach TAS by calling toll-free 1-877-777-4778

The questions above come verbatim from IRS publications. For IRS tax help and other tax tips visit the IRS website.

source: irs.gov

Many taxpayers had difficult financial times in 2009. If you are one of the millions of Americans who lost your job, received unemployment compensation, received less income, searched for a job, closed your own business, withdrew money from your IRA or had a drop in value in your 401(k), they may be a tax impact on your federal income tax filing.

Here is a quick summary of “What If” scenarios and the possible tax impact on your federal income tax filing:

What if I lose my job?
The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable. The IRS has updated a helpful publication which lists a number of job-related tax issues.
Publication 4128, Tax Impact of Job Loss.

What if I receive unemployment compensation?
Unemployment compensation you received under the unemployment compensation laws of the United States or of a state must be included in your income. It is taxable income. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.
See Publication 525, Taxable and Nontaxable Income.

Note: The American Recovery and Reinvestment Act temporarily will change the taxation of unemployment benefits for the 2009 tax year only. Under the new economic stimulus law, the first $2,400 of unemployment benefits received in 2009 will not be subject to federal taxes. The exemption will be reflected on those tax returns filed in 2010.

What If Your Income Declines?
There are many tax credits that are subject to income limitations. If you had a reduction in income this year you may be eligible for some credits or deductions. For example, the Earned Income Tax Credit is available for working families and individuals. Eligibility is determined by income and family size. You must file an income tax return in order to claim EITC.
Here is more info on the EITC.

What if I am searching for a job?
You may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. For more information, see Publication 529, Miscellaneous Deductions . Moving costs for a new job at least 50 miles away from your home may also be deductible.

What if my employer goes out of business or in bankruptcy?
Your employer must provide you with a Form W-2 showing your wages and withholdings for the year by Jan. 31 of the following year. For example, if you were employed during 2009, your employer should provide you with a W-2 for 2009 by Jan. 31, 2010. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fails to provide you with a Form W-2, contact the IRS and we can help by providing you with a substitute Form W-2. If your employer is liquidating your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA. For more information, see Starting, Operating or Closing a Business.

What if I withdraw money from my IRA?
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty. There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss. For more information, see Publication 590, Individual Retirement Accounts.

What if my 401(k) drops in value?
Generally, you can not claim a capital gains loss on your retirement accounts that already are receiving favorable tax treatment. The only time you would have a loss is when you receive a distribution that had previously been taxed. For more information, see Publication 575, Pension and Annuity Income.

If you believe you may have trouble paying your tax bill contact the IRS immediately. There are steps you can take to help ease the burden. You also should file a tax return even if you are unable to pay so you can avoid additional penalties.

source: irs.gov

Before you know it, federal income tax season will be here. If you were one of the millions of unfortunate Americans who lost their job in 2009, be aware it may have created new tax issues.

The Federal Stimulus Act has extended the tax benefit for those who received unemployment compensation in 2009. The first $2,400 of 2009 Unemployment Compensation is TAX-FREE. However, the unemployment benefits above the $2,400 limit will still count as taxable income.

Otther income tax issues created by unemployment have to do with severance and other payments. Severage payments from your former employer are taxable. In addition, any payments you received for accumulated vacation or sick time is also taxable. Always ensure that enough taxes are withheld from these payments to avoid a big tax bill.

Generally, withdrawals from pension plans are taxable unless they are transferred to a qualified plan (like an IRA). If you happen be under 59 1/2, an additional tax may apply to the taxable portion on your federal income tax.

If you sell stocks, bonds and investment property are not immediately taxable. However the sale of assets should be reported. If you have a gain on a sale, it may generate an income tax liability. You should review your overall tax situation and make sure you pay the required taxes to avoid any estimated tax penalty. Be aware that it may effect your federal income tax and state income tax (if applicable).

There are some deductions you can take when filing your federal income tax forms. You can deduct employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews.

If you lost your job, be advised that moving costs incurred because of a job change may be deductible. You must meet certain criteria relating to distance moved and timing of the move.

If you decide to start your own business after becoming unemployed, be aware that the IRS provides information and classes.

If you become eligible for Public Assistance or Food Stamps it is not taxable.

Your former employer must provide your W-2 by January 1, 2010, even if the business filed bankruptcy. If you haven’t received your W2 by the required time, contact your former employer. If that fails, the IRS can assist you in filing a substitute W-2.

If you lost your job in 2009, we suggest you contact IRS (www.irs.gov), your accountant or a tax attorney to maximize your tax deductions and reduce your tax liabilities.