Now for some better news: Taking eligible deductions can allow you to offset some of that income and lower your overall tax liability. Here's a look at some tax strategies to consider after a job loss.
Additional tax breaks
During a year when you're unemployed, you're likely to have lower income. That means you may be eligible for additional tax breaks such as the Earned Income Tax Credit or the Savers Credit.
The maximum Earned Income Tax Credit you can take for 2018 is $520 with no qualifying children, or up to $6,444 with three or more qualifying children, reports the IRS 2019 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates Opens in a new window. There are income limits, but you must have some earned income during that calendar year to qualify.
The Savers Credit is for contributions to a retirement plan. Depending on your adjusted gross income, the amount of the credit is a percentage of your retirement plan or IRA contributions up to $2,000 for 2018 (or $4,000 if you're married filing jointly), according to the IRS Opens in a new window. (You or your spouse must have earned income this year to be eligible to make an IRA contribution.)
If you or your family use your employer-sponsored health insurance, you're eligible to continue your health coverage through COBRA. However, because you'll be paying both the employer and employee portion of premiums, this health insurance can cost significantly more than what you paid as an employee. Health care marketplaces limit new enrollment to a specific time of year, but because a job loss is considered a change in life circumstances, you can purchase a plan outside of the open enrollment period. You may also be eligible for health care tax credit subsidies while you're unemployed, depending on your income. These credits can lower your monthly premium payments. Some states have also expanded Medicaid eligibility based on income, according to the HealthCare.gov website.
Keep in mind that, if you don't enroll in COBRA or another health plan, you may be subject to a penalty at tax time. And if you have major health care needs while you're uninsured, you may end up with huge medical bills.