Who Can Claim the Job Hunting Tax Deduction?

For many years, taxpayers could offset job hunting costs through a specific tax deduction that reduced their overall taxable income. This provided a measure of financial relief during a period of transition. However, the rules governing this deduction have shifted significantly, impacting who can claim it and under what circumstances.

The Current Federal Rule on Job Hunting Expenses

The Tax Cuts and Jobs Act of 2017 (TCJA) suspended the deduction for most unreimbursed employee expenses, including the costs of searching for a new job. This change affects the majority of W-2 employees and is in effect for tax years 2018 through 2025. Barring new legislation, this suspension will remain in place until 2026.

However, this suspension does not apply to everyone. A few specific categories of employees can still deduct job-hunting costs as an adjustment to their income. According to the IRS, this includes:

• Armed Forces reservists
• Qualified performing artists
• Fee-basis state or local government officials
• Employees with impairment-related work expenses

For these specific groups, the former 2% of AGI limitation does not apply.

Qualifying Expenses Under Previous Rules

The Internal Revenue Service (IRS) had specific criteria for who could claim job search expenses before the TCJA. A primary condition was that the taxpayer had to be looking for a new job within their existing occupation. Expenses incurred while trying to switch to a new career field were not eligible for the deduction.

Another limitation was that the deduction was not available to individuals looking for their very first job. The deduction was also unavailable if there was a substantial break between the end of a previous job and the current search for a new one.

Prior to the TCJA, job search costs were a miscellaneous itemized deduction. To claim them, a taxpayer had to itemize deductions on Schedule A of Form 1040. The expenses were only deductible to the extent that they, combined with other miscellaneous deductions, exceeded 2% of the taxpayer’s adjusted gross income (AGI).

Under the old rules, a variety of costs qualified for the deduction, including:

• The expenses of preparing and circulating a resume, such as professional writing services, printing, and postage
• Fees paid to employment agencies or career coaches
• Costs for transportation and lodging for job seekers who traveled to interviews
• Fifty percent of the cost of meals related to job search travel

State-Level Job Search Deductions

While the federal deduction for job hunting expenses is suspended for most employees, some individuals may still be able to claim a similar deduction on their state income tax returns. State tax codes vary in how closely they conform to the federal tax code. Some states automatically adopt most federal tax law changes, while others have their own distinct tax rules.

Because of this variation, a state may not have conformed to the TCJA’s suspension of miscellaneous itemized deductions. In such states, taxpayers might be able to deduct job search expenses on their state return. The rules for what qualifies and how to claim the deduction would typically mirror the old federal rules. Since state laws can change, it is important to check the current year’s rules before attempting to claim a deduction.

Deducting Expenses for Self-Employed Individuals

The rules for self-employed individuals, such as freelancers and independent contractors, are different from those for employees. The TCJA’s suspension of miscellaneous itemized deductions did not affect the ability of a self-employed person to deduct business expenses. For this group, costs associated with finding new projects or clients are treated as ordinary and necessary business expenses.

These deductions are claimed on Schedule C (Form 1040), Profit or Loss from Business. Unlike the former employee deduction, these expenses are not subject to the 2% of AGI floor and are deducted directly from business income. This can include a wide range of costs, such as advertising and marketing services, fees for online platforms that connect freelancers with clients, and expenses for attending networking events.

For example, a freelance graphic designer could deduct the cost of a subscription to a job board for creative professionals or the expenses for traveling to pitch a new client. These are considered part of the cost of doing business, so long as the expense is directly related to the operation of the existing business.