2. Withholding is Voluntary

Taxes are not withheld from unemployment checks, but you may file in some states to get 10% withholding in order to help cover the federal tax. Complete and submit a W-4V form, or Voluntary Withholding Request, to the unemployment office where you applied for your benefits.

3. A tax break helps in 2010 - It won't help jobless people filing their 2009 returns, but the stimulus legislation allows people receiving employment benefits in 2009 to exclude the first $2,400. The government also boosted weekly unemployment benefits by $25 through 2009 and now provides for up to an additional 33 weeks of extended unemployment benefits through Dec. 31 for workers who have exhausted their 26 weeks of regular unemployment benefits.

4. Job-Seeking expenses are deductible - Keep track of all your job search expenses, including miles driven, employment agency fees, supplies, mailing expenses, phone calls and career-related coaching. All are tax-deductible.

5. Self-Employment expenses can help - If you're working out of your home and starting over after losing your job, you can deduct costs and even part of your mortgage interest taxes if you have a home office dedicated exclusively to working. But it may be prudent to check in advance with a tax adviser to make sure you qualify.

6.  Health insurance and other medical expenses are deductible (if they exceed 7.5% of adjusted gross income). If any income is earned during the period of unemployment, then "self-employed" status can be invoked to cover additional health expenses. (Unfortunately, if the amount is more than $400, it will also be subject to the hefty self-employment tax.)

7.  Unemployed status also waives the hefty penalties for withdrawing from IRA and 401(k) plans for certain expenses (including healthcare). And unemployed status also opens a loophole for IRA contributions. Normally IRA contributions aren't tax deductible if an employee is already covered by their employer's retirement plan. Being unemployed for any part of the year opens a window of eligibility.

*Please consult a tax professional