New York, January 23 (FinanceEnquiry.com) - Internal Revenue Service (IRS) has clarified that all unemployment insurance benefits received in 2011 by unemployed people are taxable as income. Some people have the misconception that these benefits are not taxable as was the case in 2009 for the first $2,400 in unemployment benefits. This provision has not been renewed by the Congress. However, unless a person requests that federal taxes be withheld, there could be a big surprise in store for the people when the taxes will be calculated.

Since an unemployed person would have much lower income in a year even if the unemployment benefits are taken into consideration, the applicable tax bracket would also be lower. Moreover, the person could also qualify for tax breaks that were not applicable earlier. The IRS has advised people, who have major household changes and who have lost their jobs in 2011, to examine carefully aspects such as the earned income credit.

The IRS has also advised people to file their taxes even if they are not in a position to pay the due taxes because many options would be available that they might not be aware of, such as installment agreements.

Tax breaks are available for people who have spent part or all of 2011 looking for a job, as they can include all job search expenses, such as stationery, hotel expenses, long distance calls and anything else related to the job search, subject to certain conditions.