Surviving Layoffs in 2023: A Guide to Managing the Tax Implications of Job Loss

The impact of layoffs on taxes has been a significant concern for many who were affected in 2022. Last year, over 363,824 jobs were planned to be cut, with 76,835 lost in November alone, according to Trading Economics. The tech industry was among the hardest hit, but other industries such as automotive, financial services, and real estate were also affected, as reported by Go Banking Rates on January 30, 2023.

Loss of a job affects taxes, as unemployment benefits and severance pay are taxable. Lower income may make the individual eligible for tax benefits, but a large severance could increase tax liability, putting them in a higher tax bracket.

Unemployment benefits and severance pay are taxable income on the 2023 federal tax return. A lump sum payment in a severance package may be eligible for a lower tax rate as capital gains tax. Job hunting expenses such as resume preparation and travel are tax-deductible, and it’s important to keep accurate records of related income and deductions, according to Go Banking Rates.

For those unsure about the tax implications of a layoff, it’s recommended to speak with a qualified tax professional. Lucia Jensen suggests spreading out the tax liability or contributing the money into a retirement account or 401(k) to minimize the tax burden. Brooks warns that including unemployment benefits or severance as taxable income could lead to a higher tax obligation and a lower refund.