disaster relief

Tax

Lost Your Job? There Could Be Tax Consequences

Given the current economic conditions, you may be faced with tax questions surrounding a job loss and unemployment issues. Here are some answers:

Q: What if I received unemployment compensation in 2012?

A: Unemployment compensation you received under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. 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.

Types of unemployment benefits include:

  • Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
  • Railroad unemployment compensation benefits
  • Disability payments from a government program paid as a substitute for unemployment compensation
  • Trade readjustment allowances under the Trade Act of 1974
  • Unemployment assistance under the Disaster Relief and Emergency Assistance Act

 

You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

Q: Can I have federal income tax withheld?

Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.

 

Q: What if I lost my job?

A: 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.

Q: What if I searched for a job?

A: You may be able to deduct certain expenses you incurred while looking for a new job, even if you did not get a new job. Expenses include travel, resume preparation, and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible.

Q: What if my employer went out of business or in to bankruptcy?

A: Your employer must provide you with a 2012 W-2 Form showing your wages and withholdings by January 31, 2013. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over to another qualified retirement plan or IRA.

If you have experienced a job loss and have questions, please call us. You need to be prepared for the tax consequences.

Tax

IRS Provides Relief for Hurricane Sandy

In the aftermath of Hurricane Sandy, the Internal Revenue Service has announced several types of relief aimed at helping affected individuals and businesses. Here are two of them.

Qualified Disaster Treatment of Payments to Victims of Hurricane Sandy

In light of the designation of Hurricane Sandy as a qualified disaster for tax purposes, the IRS is notifying taxpayers and employers that qualified disaster relief payments made to individuals by their employer or any person can be excluded from those individuals’ taxable income.

Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

In addition, employer-sponsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without affecting their tax-exempt status.

Return Filing and Tax Payment Deadline Extended to February 1, 2013

Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Connecticut, New Jersey and New York will receive tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.

The tax relief postpones various tax filing and payment deadlines that occurred starting in late October. As a result, affected individuals and businesses will have until February 1, 2013 to file these returns and pay any taxes due. This includes the fourth quarter individual estimated tax payment, normally due January 15, 2013. It also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on October 31, 2012 and January 31, 2013 respectively. It also applies to tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period.

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The IRS automatically provides this relief to any taxpayer located in the disaster area.

Taxpayers need not contact the IRS to get this relief.

Beyond the relief provided by law to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who resides outside the disaster area but whose books, records or tax professional are located in the areas affected by Hurricane Sandy. All workers assisting the relief activities in the covered disaster areas who are affiliated with a recognized government or philanthropic organization are eligible for relief. Please contact us if you are a taxpayer who lives outside of the impacted area, but think you may qualify for this relief. We can help you sort it out.

In addition, the IRS is waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after the disaster area start date and before November 26, if the deposits are made by November 26, 2012.

So far, IRS filing and payment relief applies to the following localities:

In Connecticut (starting October 27): Fairfield, Middlesex, New Haven, and New London Counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;

In New Jersey (starting October 26): Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, Somerset and Union;

In New York (starting October 27): Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester.

Questions? Don’t hesitate to give us a call. We have answers!

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