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10 Financial Tips for the Unemployed

Unemployment rates have hit historic highs recently as the economy continues to flounder. Current statistics indicate that about one in every ten Americans is unemployed. With such staggering levels of unemployment, the chances are good that unemployment has or will affect you or someone close to you. To help you survive unemployment without ravaging your financial health, we’ve put together these ten financial tips for the unemployed.

1. Understand your unemployment benefits. Your state should pay 26 weeks of unemployment benefits according to current laws. Talk to your local unemployment office to find out if you may also qualify for federal benefits.
2. Collect the vacation pay that you never used. About half of the states in the U.S. have laws requiring employers to include unused vacation pay in an employee’s last paycheck. However, some employers are not aware of this law, so you may have to remind them or file a complaint with the labor agency in your state.
3. Don’t forget to keep paying taxes. The unemployment benefits you receive are subject to income taxes, as are the payments you receive for unused sick time, vacation time, and severance benefits. Verify that enough taxes are withheld from these payments so you don’t have to scramble when tax day rolls around.
4. If you’re 55 or older, dip into your 401(k). If you’re unemployed and 55 or older, you can withdraw funds from your 401(k) without having to pay the 10% early withdrawal fee. You will, however, still have to pay income taxes on the funds.
5. Purchase health insurance with IRA funds. If you collect unemployment benefits for at least 12 weeks, you can use funds from your IRA to pay health insurance premiums while you’re unemployed without paying any early withdrawal penalties.
6. Reverse the contribution you made to your IRA. You can undo a contribution to your IRA without any tax penalties if you already made one this year.
7. Deduct your job-hunting expenses. Regardless of your employment status, you can deduct certain job-hunting costs on your taxes for a job in the same field. You can qualify for the deductions even if you don’t find a new job.
8. If you have to relocate for a new job, deduct your moving expenses. If your new job requires you to relocate, some of your moving expenses may be tax-deductible as long as you move near the start date of your new position and move more than 50 miles.
9. Go back to school and qualify for tax benefits. Returning to school can make you more competitive in the job market, and it may also qualify you for certain tax deductions. You might be able to itemize tuition costs as deductions or you may be eligible for tax credits like the Lifetime Learning or Hope credits.
10. Ask a family member for help. Individuals are permitted to give monetary gifts of up to $13,000 without having to pay estate taxes or federal gift taxes. Although the giver will not be able to deduct the gift, you will not have to pay income taxes on it either.