If You Received Unemployment Insurance in 2011, It's Taxable Income

The jobless rate is dipping, but millions of people are still out of work. And that could have implications when they file their income tax returns.

Collecting unemployment insurance benefits? All that you received in 2011 is taxed as income. Unless you requested that federal taxes be withheld, you could be in for a big surprise when you calculate taxes owed.

"People tend to believe unemployment benefits are still not taxable," said Bob Meighan, a vice president at TurboTax. That was the case in 2009, for the first $2,400 in unemployment benefits. But that provision was not renewed by Congress.

If it's any consolation, you may find yourself in a lower tax bracket because of reduced income, even counting the unemployment benefits. And you might also be eligible for tax breaks that you didn't qualify for before.

"If you have major household changes, say you lost your job in 2011, we encourage people to take a close look at things like the earned income credit," Internal Revenue Service spokesman Terry Lemons said.

He said people should go ahead and file their taxes even if they don't have the money to pay any taxes that are due. "There are more options there than many people realize," he said, including installment agreements.

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