The official unemployment rate was 4.2% in June 2026, according to the Bureau of Labor Statistics. That figure only counts people who’ve applied for work in the past four weeks. The BLS also tracks a few broader measures, such as people working part time who’d prefer full-time. That rate was 7.9%.
Whatever the number, taxes don’t pause while you’re looking for work. Here are a few tax tips to keep in mind as you transition between jobs.
File a tax return
Even without a full-time job, there’s potentially still income you need to report including wages from your former job, severance pay, part-time employment, freelance income, or unemployment benefits.
You can choose to have federal taxes withheld from your unemployment compensation by completing Form W-4V. Taking this simple step can help you avoid a larger tax bill when you file your return.
Each January, you’ll receive Form 1099-G, which reports the total unemployment compensation you received and any federal tax withheld. You’ll use these figures when preparing your tax return.
Freelance work, side gigs, or side-job income earned during the same period is also taxable and gets added to the total income earned during the year.For anyone who is self-employed while collecting benefits, it’s worth factoring unemployment income into quarterly estimated tax payments alongside your net self-employment income.
Once a new paycheck starts coming in, updating your W-4 with your new employer helps account for any part-year gaps and keeps your withholding on track for the rest of the year.
Minimize penalties on withdrawals from retirement accounts
Withdrawals before age 59½ usually carry a 10% penalty on top of regular income tax. A handful of exceptions apply but here are just a few of the more common ones:
Medical expenses that exceed 7.5% of adjusted gross income are penalty-free.
IRA withdrawals used to pay for health insurance premiums are penalty-free after 12 consecutive weeks of unemployment compensation (IRAs only — this doesn’t extend to 401(k)s).
IRA withdrawals for qualified higher education expenses are also penalty-free.
Anyone who separates from a job at 55 or older can tap that employer’s 401(k) penalty-free.
Roth IRA contributions (not earnings) generally come out tax- and penalty-free at any time.
Job search costs are no longer deductible
Resume preparation, recruiter fees, agency costs, and travel to interviews used to qualify as a miscellaneous itemized deduction. That deduction was suspended in 2018 and has since been eliminated for good at the federal level for most employees. A few states haven’t matched the federal change, so it may still be deductible on your state tax return.
Deductions and credits
A lower income can open up eligibility elsewhere:
Unreimbursed medical costs above 7.5% of income are deductible for itemizers.
The Earned Income Tax Credit and Child Tax Credit both scale with income, so a lower income can mean a larger tax credit for parents.
The Child and Dependent Care Credit covers child care costs tied to work or a job search.
The Saver’s Credit rewards contributions to an IRA or 401(k) for lower-income filers worth up to $1,000 ($2,000 for joint filers).
Don’t let your tax return worry you. You aren’t in this alone, and TurboTax is here to help. When you begin your tax return, TurboTax will ask if you lost your job during the past year. If you did, TurboTax will ask simple questions about your situation and guide you to the credits and deductions that will put the most money back in your pocket.
Here are a few end-of-summer tips to help you save more money at tax time.
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