How Does Changing Jobs Affect Your Tax Return?

March 16, 2018 : Monica Welsh

A new near usually comes with resolutions. This year, they may include changing jobs. Like so many aspects of our lives, changing jobs comes with tax benefits and consequences.

The most obvious implication will be a possible change in your tax rate if your job change is advantageous enough to shoot you into a higher bracket. However, there are plenty of other tax effects that may be less obvious.

Deduct Job Search Expenses

If you spend a long time looking for a new job you likely racked up some expenses in the process. These costs may include using a recruiter or outplacement agency, traveling for interviews, or even preparing and mailing your resumes. Fortunately, if you are searching for a job in your current trade or business, you can take a deduction for these job search expenses.

The following are examples of allowable job search expenses you may deduct on your Schedule A:

  1. Employment, career development, and outplacement agency fees
  2. Cost of resumé preparation, including development (such as fees charged by professional resumé specialists), printing, and mailing
  3. Travel and transportation expenses where the job search is the primary purpose of the travel

There is no deduction allowed for job search expenses if:

  1. You are looking for a job in a new occupation, even if you get the job.
  2. A substantial break exists after the ending of your previous job.
  3. You are looking for a job for the first time – no deduction for college graduates looking for their first job.

Moving Expenses Deduction

If you are fortunate enough to a find a job and that job requires you to move, you may be able to deduct the moving expenses from your taxes. The move must meet certain distance and time requirements to be deductible.

There are three requirements you must meet to qualify for the moving expenses tax deduction.

  • Your move must be closely related in time and place to the start of your new job location.
    • Time: Move must occur within one year of the start date of your new job.
    • Place: The distance between the new job and your new home cannot exceed the distance between your new job and your former home. (Note: There is an exception if your new employer requires you to live in your new home or you will spend less time or money commuting to your new job.)

DISTANCE TEST: Your new job must be at least 50 miles farther from your former home than your old job was from your former home

TIME TEST: You must meet the time test:

  • If you are an employee, you must work full-time for at least 39 weeks during the first 12 months after your move
  • If you are self-employed, you must work full-time for at least 39 weeks during the first 12 months AND at least 78 weeks during the first 24 months after your move

Rethinking Your Withholding

When you begin your new job you will have the opportunity to complete a new Form W-4 to indicate your withholdings for your new employer. This is a great time to think about possibly changing your withholding amounts. If you have been earning any self-employment income, you may want to consider increasing your withholding amounts so that you can avoid having to pay estimated taxes.

If you are planning a job change for the year, speak with an H&R Block tax professional before changing jobs so that you know how it could affect your tax return. A tax pro can help you navigate what records to keep track of and what things you should consider when you move to the new position.

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Monica Welsh

Monica Welsh

The Tax Institute, H&R Block

Monica is a tax research analyst in the Tax Institute. She specializes in the areas of business and investment. Monica is a graduate of the University of Missouri-Kansas City School of Law with a JD and an LLM in tax.