A job change is exciting — or stressful — depending on the circumstances. Either way, taxes are probably the last thing on your mind. But a career transition, whether you’re starting something new or navigating an unexpected layoff, can quietly create tax situations worth paying attention to.
Starting Something New: Don’t Overlook the W-4
When you start a new job, one of the first forms you’ll fill out is a W-4. This tells your employer how much to withhold from each paycheck for federal taxes. It sounds simple, but if you’re moving from one job to another mid-year, or juggling two income sources during the transition, it’s easy to end up under-withheld without realizing it. That can mean an unwelcome balance due when you file.
Losing a Job: Severance and Unemployment Are Taxable
On the other side of the coin, losing a job brings its own set of tax considerations. Severance pay is taxable income, even though it may not feel like a regular paycheck. Unemployment benefits are also taxable at the federal level — something many people don’t realize until they’re sitting across from their tax preparer in the spring.
What Happens to Your 401(k)?
If you have a 401(k) with a former employer, the decisions you make about that account matter too. Cashing it out might seem appealing in a tight moment, but taxes and penalties can take a significant bite out of that money.
Don’t Wait Until Tax Season
The common thread here is that job transitions tend to create gaps — in withholding, in planning, in awareness — that show up later as tax surprises. A quick check-in with your tax preparer during the transition, not after, is usually the smartest move.