Fortunately, there are some moves the unemployed can make to reduce their taxable burden and leave more cash in their own pockets.
The Illinois CPA Society has released a list of things worth knowing by Americans who are out of work and busy looking for a job:
Unemployment income is taxable. Unemployment benefits are taxable on the federal and state level. If you haven't already, get your state and federal taxes withheld from your unemployment wages. That basically stops you from spending cash that needs to be set aside for tax payment purposes.
You should always file a tax return. Just because you're out of work doesn't mean you should ignore your taxes. Any income received during the previous year even vacation or sick pay accumulated in your old job is considered taxable income and could get you in hot water with the IRS if not included in tax payments. Plus, there is an upside. "If you worked for part of the year and had taxes withheld or paid estimated taxes while employed, you may get a refund due to your subsequent drop in income," The ICPAS says.
You should take your tax credits. With joblessness comes a lower income level, and that may qualify you for the federal Earned Income Tax Credit, Child Tax Credit and the Child and Dependent Care Credit (among others).