Do I Need to File Taxes If I Was Unemployed?

In the eyes of the IRS, income is income. If you have income, you owe taxes on it (with a few exceptions). Whether you were employed during the year or not, you still have to file an income tax return and pay taxes based on your income -- unless your taxable income was less than $400 if self-employed or $8,950 or less on a W-2 filed by an employer.

IRS Filing Status and Employment Status

IRS filing status and employment status are completely independent. Everyone -- employed or unemployed -- must file an income tax return if he has an income above a certain amount in a year. However, if you are unemployed and lived entirely on your savings, and did not have an income above the specified amount for the year, then you do not have to file a return.

Unemployment Benefits

Unemployment benefits are taxable as regular income, although as of 2009 the first $2,400 of unemployment benefits received in a year are not taxed. Most states have a plan where you can have a percentage of your benefits withheld for income taxes, but you must sign up and specify the percent to withhold.

Consulting and Other Freelance Work

You are not only responsible for income taxes on income from freelance and consulting work, but also the full 12.5 percent FICA (Social Security plus Medicare) withholding. When you work as an employee for an employer, you only have to pay half (6.25 percent) since your employer is responsible for paying the other half.

Itemizing Deductions

If you are unemployed it is usually wise to consider itemizing your deductions when you file your income taxes instead of taking the standard deduction. All job hunting and career-related expenses such as getting professional help with your resume or career counseling or transportation expenses are potentially deductible. Expenses related to freelance work, including supplies, depreciation of equipment, advertising, and phone calls can also be deducted. You can even claim medical deductions, from health insurance premiums to prescriptions, if your medical costs are greater than 7.5 percent of your adjusted gross income.

References

• IRS: Do You Need to File a Federal Income Tax Return?
• CNN Money: Tax Tips for the Unemployed
• My Two Dollars: Unemployed? Yes, You Still Have To Pay Taxes.