American workers will soon be on the move – a big time – if they aren’t already.
Job hunting could become a new national pastime, with millions of people ready to seek better opportunities as the national economy continues to improve.
A recent Bankrate.com survey estimates that 55% of working people are likely to look for a new job in the next 12 months. It involves a lot of changes to come.
Mesmerized by the possibility of higher pay, better benefits, and more flexibility (including remote work options), job seekers sometimes overlook other factors that can make a news shine. job opportunity.
Here are six questions you should ask yourself:
1. Can you handle a salary interruption?
Expect at least a short delay between the last paycheck from your old employer and the first from the new entity, especially if you take at least a few weeks off before starting the new job.
Could you close the income gap? A lot of people can’t.
A quarter of adults said they had no emergency savings, according to a separate Bankrate.com survey released in July. This is in addition to another quarter who has money in reserve but not enough to cover three months of expenses.
If you live paycheck to paycheque, plan how you will close any income disruption. Maybe it’s time to postpone an invoice due date or two, for example.
Conversely, you could receive payment for unused vacation or other benefits that could make your last paycheck bigger.
It would require thinking about what to do with that money. Everything from paying off debt to splurging could be a possibility, or you could accumulate savings or open a new investment account.
2. Can you deduct expenses?
Previously, moving and job search expenses could be deducted from federal income tax returns. But for most people, that is no longer the case, with those tax benefits suspended until at least January 2026. (An exception applies to military personnel on active duty who have been ordered to settle. in a new position.)
Even though moving and job search expenses were still deductible, they might not be enough for most people. Now that the standard deduction has been improved and even slightly increased in 2021,most taxpayers no longer find it useful to detail. (The standard deduction is $ 25,100 for married couples and $ 12,550 for individuals.)
On the bright side, many job seekers do job searches and participate in interviews remotely, reducing more expensive in-person visits. This removes some of the lost tax deductions.
3. What about other tax impacts?
If you find a higher paying job, you may need to increase your withholding tax or schedule estimated quarterly tax payments.
Conversely, if you take advantage of a pay cut, possibly by reducing hours, this could open up other opportunities for tax savings, such as the retirement savings credit, which you were unable to obtain. be eligible previously.
If you have been out of work and received unemployment benefits, be aware of the changes.
Unemployment benefits are generally taxable, but Congress made the first $ 10,200 of such benefits received in 2020 exempt from tax for those with incomes below $ 150,000. But that was for 2020 only. In the future, expect unemployment benefits to be fully taxable.
An even bigger tax shift awaits you if you go from being an employee to being an independent contractor, warned Bailey Tocco, managing director of tax / accountant company CBIZ MHM in Phoenix.
For example, entrepreneurs can often deduct expenses normally covered by employers, such as computers, business travel, home office supplies and expenses, she said. But they also have to pay a higher self-employment tax and should be prepared to make estimated quarterly payments, as no one will withhold taxes from paychecks.
“There is a lot of movement for contract work,” Tocco noted.
Those making the switch should pay attention to the different tax and cash ramifications, she added.
4. Should you re-evaluate your budget?
A new job will likely lead to changes in income and expenses, which makes it a good idea to review your budget, said Nayan Ranchhod, general manager of Silver Lining Wealth Advisors in Scottsdale.
Your income could change significantly, and the costs you incurred for benefits could change as well, which could dramatically affect your take-home pay.
For example, your new employer might not let you participate in their 401 (k) plan for maybe three months, Ranchhod said. Therefore, you could reap an unusually high amount of take home pay during this time. Make sure to realize that this is temporary if you intend to eventually join the employer’s pension plan.
You could add more to other savings or investment accounts during that time or choose to pay off credit card debt, he said.
You would have more money to work if you received a signing bonus.
These incentives seem more common at a time when many employers are struggling to attract workers.
5. What to do with your 401 (k) plan?
If you have already signed up for a 401 (k) plan, there are several options available to you.
You can leave the account with your former employer (if that option is available), switch to the new employer’s pension plan (if applicable), transfer the money to a revolving individual retirement account, or cash it out.
Transferring the money to an IRA for refinancing with a brokerage of your choice is often a good choice, offering flexibility, a wide choice of investments, and the ability to consolidate investments.
With a rolling IRA, you also keep the tax-sheltered nature of the account. However, 401 (k) plans generally offer greater protection against creditors compared to IRAs.
Cashing in your 401 (k) and spending the money is usually the worst decision.
You will have to pay regular taxes on the amount withdrawn and a 10% penalty if you are under 59 1/2. Plus, you would be withdrawing money from your retirement account, possibly setting you back for years or even decades.
6. Are you ready to look at the benefits?
A new job usually involves a lot of changes – new colleagues, a new culture and possibly different responsibilities.
It may sound overwhelming, but you should take the time to familiarize yourself with the many health, retirement, and other benefits of your new workplace.
In fact, this is a new opportunity to assess some of the less obvious benefits that might be available, such as assistance for dependents, tuition reimbursement plans, employee discount programs and l disability insurance, Ranchhod said.
Disability insurance is not just for physical injuries.
“It could also be good for mental health, being exhausted or having stress-related issues,” he said. It’s a way to protect one of your most important assets: your paycheck.
Choosing the right benefit package isn’t that critical if you land a new job in late summer or early fall. This is because the annual open enrollment season usually begins in early November, so you’ll have another chance to get it right if you didn’t do it when you first hired.
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