Whether you get an exciting new career opportunity or become the victim of corporate downsizing, you're likely to switch jobs at some point-perhaps often-in your career. Leaving a job and starting a new one has a number of implications for both your tax bill and your benefits.

Separation pay and other compensation

Any severance pay or unemployment compensation you receive is taxable, as are payments from your old employer for any accumulated vacation or sick time, so be sure that enough taxes are withheld from these. Also, make sure to watch for that final W-2 form from your former employer. The company isn't required to send it to you right away, but must provide it by January 31 of the year after you leave the company.

Job-hunting expenses

You can take an itemized deduction for the expenses you incur in looking for a new job, even if your job search is unsuccessful, but the job you're seeking must be in the same line of work. Eligible expenses include the cost to print and mail your resume, fees paid to an employment or outplacement agency, and travel costs associated with the job search. But there's a catch: Job-hunting costs are part of miscellaneous expenses reported on Schedule A of the 1040. Only miscellaneous expenses that exceed 2% of your adjusted gross income are deductible.

Moving costs

If changing jobs requires you to relocate, your moving costs and the expense of traveling to your new location may be deductible. There are, however, distance and time tests you must meet. Your move passes the distance test if the main location of your new position is at least 50 miles farther from your former home than the main location of your old job. Note that the distance from your home to the new job isn't what matters; it's that the commute would have to be at least 50 miles farther if you didn't relocate. As for the time test, if you're an employee you must work full time for at least 39 weeks (not necessarily for the same employer) during the first 12 months after you move. If you are self-employed, you must work for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new job location. You claim the deduction for the year of the move even if you haven't yet passed the time test when it's time to file your return… assuming you expect to pass the test. Good news: You can take this write-off even if you don't itemize deductions.

Withholding

Starting a new job gives you a fresh chance to get your withholding right-something most employees fail to do, as evidenced by the fact that about 100 million get fat tax refunds each year. Take the time to go over the instructions for the W-4 form you're asked to fill out for your new employer. The number of "allowances" you claim on that form controls how much will be withheld from your checks.

Note this: withholding may jump after your job switch if you have already earned more than the Social Security wage base for the year. For 2007, the 6.2% Social Security tax on employees applies to the first $97,500 of wages. After you reach that point, your employer stops withholding the tax. But, if you move to a different job, that firm must withhold the tax until it has paid you $97,500. You don't really owe more than $6,045 (6.2% of $97,500), so any excess Social Security tax withheld will be refunded when you file your tax return for the year.

Selling your home

Moving to a new job may entail selling your primary residence, which can have capital-gains tax implications. Normally, the law allows you to avoid capital gains tax on the first $250,000 of gain on the sale of your home ($500,000 for married couples), if you have lived there at least two years out of the last five. What happens if you're forced to sell your house and move less than two years after you bought it? If the sale is the result of a job change, and you pass the 50-mile distance test described above, IRS rules allow you to take a partial exclusion, based on the amount of time that you used the house as a primary residence. If you owned and lived in the house for just one year, for example, you'd get half the exclusion available to those who meet the two-year test. That means up to $125,000 of profit would be tax free ($250,000 for married couples).

Retirement savings

Changing jobs is a dangerous for retirement savings. Too many employees take the opportunity to get their hands on 401(k) money as a license to do so. At any age, cashing in the 401(k) means paying tax on every dime you withdraw (unless you have made after-tax contributions) and, if you're under age 55 in the year you leave your job, you'll also be hit with a 10% tax penalty. Maybe worse yet, short-circuiting you retirement savings could be disastrous for your long-term financial health.

You have far better options. If you have more than $5,000 in the account, you can leave your money with your old employer, where it will continue to grow in the tax shelter. You'll probably be better off transferring your 401(k) balance to an IRA (where you would have almost unlimited investment options) or your new employer's 401(k) (if it accepts transfers and has investment options you like). If you plan a rollover to an IRA or new employer's plan, ask your old boss to ship the money directly to the new tax shelter. If you have the money paid to you, with the idea that you'll deposit it in the new plan, the law requires your old plan sponsor to withhold 20% of your money for the IRS. It's tough to rollover money that's been confiscated by the IRS. Starting in 2008, you'll be able to roll 401(k) money directly into a Roth IRA; for now, if you want to use the Roth option, you must transfer your money to a regular IRA and then convert that account to a Roth. In either case, you have to pay tax on the amount shifted to the Roth IRA, but all withdrawals in retirement can be tax free.

If part of your 401(k) is invested in your company's stock, be sure to check out the special rules for "net unrealized appreciation"-a mouthful of a tax term that could save you money.