Tax Deductions: Are Job Hunting Expenses Deductible?

Job hunting can feel like a job in itself, and it’s worth knowing which of those costs might reduce your tax bill. Federal tax law no longer allows most employees to deduct job search expenses. This means resume services, travel to interviews and similar costs generally do not reduce your federal taxes. However, that doesn’t mean every tax angle is closed off during a job search.

Consider working with a financial advisor as you seek employment in the most tax-efficient way.

Are Job Hunting Expenses Tax Deductible?

For most employees, job hunting expenses are not deductible on a federal income tax return. Costs for resumes, employment agencies, career services and travel to interviews generally do not qualify for a federal write-off.

Job search costs were previously included among miscellaneous itemized deductions subject to the 2% adjusted gross income threshold. Federal law now permanently disallows miscellaneous itemized deductions subject to that threshold.

Moving expenses related to a job change generally aren’t deductible either. Federal deductions for qualifying moves are only available to certain taxpayers, including eligible members of the military and intelligence community.

State rules can differ from federal treatment, however. Depending on where you file, some employment-related expenses that are unavailable as federal deductions may receive different treatment on your state return.

Reimbursements are another consideration when a prospective or new employer covers interview travel, relocation or related costs. The tax treatment here can vary based on the specific expense and the method of payment.

Regardless, it’s still important to keep receipts and records for significant job search and relocation costs. Even when an expense cannot reduce your federal taxes, the documentation may be useful for employer reimbursements or when preparing your state return. With any kind of tax deduction that you want to claim, you’ll need proper documentation. Without it, you could find yourself in a difficult position if the IRS audits you or requests additional information before finalizing your return.

Filing Taxes and Tracking Withdrawals During a Job Search

Losing a job does not necessarily eliminate your obligation to file a federal tax return. Wages earned before leaving your job, unemployment benefits, severance pay and other taxable income can still create a filing requirement. Unemployment compensation is generally subject to federal income tax.

That said, a lower income for the year may reduce your overall federal income tax liability. If too much tax was withheld from wages before you lost your job, you may receive the difference as a refund when you file your return.

Using retirement savings to cover expenses can create additional taxes, if you decide to do so. Withdrawals from a traditional 401(k) or IRA before age 59½ are generally subject to income tax, and a 10% additional tax unless an exception applies. You can generally withdraw Roth IRA contributions tax- and penalty-free. The tax treatment of earnings, however, depends on whether the distribution is qualified and whether an exception applies.

Before taking money from a retirement account to help make ends meet while you’re searching for your next opportunity, do some math. Calculate how much of the withdrawal could be taxable and whether the 10% penalty applies. This can help you estimate how much you need to withdraw to cover expenses after taxes, and whether it’s worth it.

What You Can Do Instead for Tax Savings

Job search expenses are not deductible on a federal return, but costs tied to self-employment may be. If you freelance, consult or drive for a rideshare service while looking for full-time work, you may be able to deduct ordinary and necessary business expenses on Schedule C. Be sure to keep those costs separate from what you spend looking for a job.

The Child and Dependent Care Credit may also apply if you have to pay for childcare so you can look for work. To qualify, you generally must have earned income during the year, even if your job search does not result in a new position.

Education can provide another tax break. The American Opportunity Tax Credit and the Lifetime Learning Credit may offset qualified education expenses, subject to the requirements and income limits for each credit.

Lower income during a job search may also make certain tax strategies more attractive. Depending on your taxable income, you could consider a executing a Roth conversion or realizing long-term capital gains at a lower tax rate. A financial advisor or tax professional can help you compare the potential tax savings with the cost of making those moves.

Related Article: What Can You Deduct at Tax Time?

Bottom Line

Trying to find a new job often requires a lot of time and effort. For most employees, job search expenses are not deductible on a federal income tax return under current law. It’s worth checking your state’s rules, though, since some states may still offer deductions federal law does not. Be sure to keep thorough records of your expenses regardless of their federal tax treatment.

Tips on Taxes

Figuring out what is and what is not deductible can be confusing. A financial advisor can offer valuable help. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. From there, you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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