Unemployment compensation is taxable income on your federal return now that the $2,400 exemption has expired. Some states exempt unemployment compensation from income. We'll handle that for you automatically.

Taxable unemployment compensation is reported to you on Form 1099-G. You should receive this form prior to February 1 each year.

New York no longer mails out Forms 1099-G. If you collected New York unemployment compensation, you'll need to rely on your own records or contact New York for the information you'll need to report unemployment income.

You can choose to have income tax withheld from your unemployment benefits. If you expect to receive unemployment benefits this year, choosing to have federal tax withheld might help you avoid a tax bill or a penalty for not having paid enough tax during the year.

If you choose voluntary withholding, a flat 10% will be withheld for federal income taxes.

Use Form W-4V or the equivalent form provided by the payer to begin or end withholding of your unemployment income. If your state withholds state income tax on unemployment compensation, look for information in boxes 10 and 11 of Form 1099-G. If you itemize, enter your state withholding so you get credit for it on your state return and as a federal deduction.

Your former employer must offer you COBRA continuation health insurance coverage if the employer had at least 20 employees on most business days last year.

If you were covered by an employer's health insurance plan, you might qualify for this benefit when your job ends.

If you lost your job due to an involuntary separation (including layoffs) between September 1, 2008, and December 31, 2009, you might be eligible for a 65% subsidy for COBRA continuation premiums. This break could be available for you and your family for up to 9 months.

This means that you would only need to pay 35% of the COBRA premium to obtain coverage under your former employer's health insurance plan.

The subsidy phases out if your modified adjusted gross income (MAGI) is more than $125,000 ($250,000 if married filing jointly). Once your MAGI is more than $145,000 ($290,000 for those filing jointly), you'll no longer qualify.

Visit the Department of Labor Web site to learn more.

Your W-2 should reflect:

• Wages you earned before your severance from employment
• Severance pay
• Pay for accumulated vacation time
• Pay for accumulated sick time if your plan provides payment for unused sick time

Your former employer should withhold federal and state income taxes from your severance pay and vacation and sick time.

If you received Form 1099-C for the cancellation of debt, the income might be taxable.

There are, however, several exclusions that might help you reduce your tax burden.

For example, debts discharged in a Chapter 11 bankruptcy aren't taxable.

Even if you didn't declare bankruptcy, you can exclude debt cancellation to the extent you were insolvent (broke). You're considered to be insolvent when your total liabilities exceed your total assets.

See the instructions for Form 982 to learn more.

If you paid moving expenses to move to a new job, they might be deductible. For your expenses to be deductible, you must meet certain time and distance tests.

• Time test - you work full-time in your new job for at least 39 weeks during the 12-months after your move.
• You can claim the deduction on your return even if you haven't yet met the time test, as long as you expect to meet the test by the date your return is due.
• Distance test - your new workplace is at least 50 miles further from your old home than your old workplace was to that home.

If you're a member of the armed forces, you can deduct moving expenses due to a permanent change of station, even if the time and distance tests aren't met.

You can deduct:

• Packing supplies
• Equipment and vehicle rental
• Use of your own vehicle (actual expenses or a standard mileage amount)
• Labor
• Lodging during the move (but not meals)
• Connecting and disconnecting utilities
• Shipping a vehicle or pet
• Train, plane, bus, taxi, and other transportation expenses
• Parking and tolls
• Storage of your belongings for up to 30 days

You can't deduct any expenses for which you were reimbursed.

After a job loss, you might need to take a withdrawal from your retirement funds.

Unless an exception applies, pulling money out of a traditional IRA results in a 10% early distribution penalty. Here are exceptions that might apply to you:

• You received unemployment compensation for at least 12 consecutive weeks and used the withdrawal to pay for medical insurance premiums for you and your family. You won't owe a penalty, but you'll need to include the withdrawal in your income.
• You used the withdrawal to pay higher-education costs. You won't owe a penalty, but you'll need to include the withdrawal in your income. Ex: You pull $10,000 out of your IRA and use it to pay college tuition. You'll need to include $10,000 in your income, but you won't owe a penalty.
• You withdrew funds before April 15 of the year for which the contribution was made. Ex: You made a $3,000 2010 IRA contribution in December 2010 and withdrew it on April 1, 2011, along with any interest or dividends the contribution earned in the IRA. The withdrawal's tax-free and doesn't result in any penalty. However, you'll need to include the interest or dividends in your income and won't be able to deduct the contribution.

• You're over age 59 1 / 2.

If you're going back to college, take advantage of education credits.

• The American Opportunity Credit gives you a credit of up to $2,500 for undergraduate education. 40% of the credit will increase your refund, even if you've already eliminated your tax through other credits.
• The Lifetime Learning Credit gives you a credit of up to $2,000 for other post-secondary education. We'll help you choose which of these credits is best for each student on your return.

Job-hunting expenses are deductible if you itemize deductions - they're included with job expenses. To qualify, you must be looking for a job in your former line of work.

Job-hunting expenses include:

• Resume preparation
• Employment agency fees
• Transportation, lodging, and meals for getting to job interviews

If you're unable to pay the full amount of your taxes, you can ask the IRS for an installment payment plan.

We'll help you with the details if you end up owing taxes and need this option.

IRS fees apply.