Job Change Deductions

Deductions for Changing your Job

Thinking of changing jobs?

Have you changed jobs? Separation pay, job-hunting expenses, moving costs, tax withholding, and more items may be deductible.

Publication 521, Moving Expenses

Job-hunting expenses
You can take an itemized deduction for the expenses you incur in looking for a new job, even if your job search is unsuccessful.

• The job you’re seeking must be in the same line of work.
• Eligible expenses include the cost to print and mail your resume, fees paid to an employment or outplacement agency, and travel costs associated with the job search.
• Job-hunting costs are part of miscellaneous expenses reported on Schedule A of the 1040.
• Only miscellaneous expenses that exceed 2% of your adjusted gross income are deductible.

Moving costs
Relocation moving costs and the expense of traveling to your new location may be deductible.

• Your new position must be at least 50 miles farther from your former home than the main location of your old job.
• If you’re an employee you must work full time for at least 39 weeks (not necessarily for the same employer) during the first 12 months after you move.
• If you are self-employed, you must work for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new job location.
• You claim the deduction for the year of the move even if you haven’t yet passed the time test when it’s time to file your return, assuming you expect to pass the test. Good news: You can take this write-off even if you don’t itemize deductions.

Withholding
The number of “allowances” you claim on the w-4 form controls how much will be withheld from your checks.

Selling your home
Moving to a new job may entail selling your primary residence, which can have capital-gains tax implications. Normally, the law allows you to avoid capital gains tax on the first $250,000 of gain on the sale of your home ($500,000 for married couples), if you have lived there at least two years out of the last five.

What happens if you’re forced to sell your house and move less than two years after you bought it?

• If the sale is the result of a job change, and you pass the 50-mile distance test described above, IRS rules allow you to take a partial exclusion, based on the amount of time that you used the house as a primary residence.
• If you owned and lived in the house for just one year, for example, you’d get half the exclusion available to those who meet the two-year test. That doesn’t mean half the profit is tax-free; it means all the profit up to $125,000 would be tax free ($250,000 for married couples).

Retirement savings
If you have more than $5,000 in your account, you can leave your money with your old employer, where it will continue to grow in the tax shelter.

• If you plan a rollover to an IRA or new employer’s plan, ask your old boss to ship the money directly to the new tax shelter.
• If you have the money paid to you, with the idea that you’ll deposit it in the new plan, the law requires your old plan sponsor to withhold 20% of your money for the IRS.