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How Unemployment Benefits are Calculated and What Happens When They Run Out

When you lose a job you may be eligible for temporary unemployment benefits which can help you bridge the uncertain – and often financially worrisome period – between jobs.  If you qualify, unemployment benefits will provide you with a percentage of your take-home pay for a specified period of time, subject to certain conditions. 

To be able to collect benefits you will need to first be approved after completing an application.  You can apply for benefits in person, through your local unemployment office, over the phone, online or by mail.  You should apply for benefits as soon as you learn that you have lost your job since it will take time for your application to be reviewed and approved before you can begin receiving payments.  It typically takes at least 2-3 weeks between the time you apply and can receive benefits; some states require a one-week waiting period.  In addition to the completed application you will need most likely need to complete an in-person interview. 

Unemployment benefits vary by state, but most states determine eligibility the same way.  To be able to collect benefits you:

  • must meet specific wages earned or time worked requirements (in most states you will need to have worked the first four of the last five calendar quarters before filing for benefits)
  • be ready, able, willing and actively seeking work
  • have involuntarily left your job through a no-fault situation (i.e. been laid off)

You cannot qualify for unemployment if you chose to leave your job on your own (i.e. resign or quit) or if you were fired due to misconduct or criminal activity.

Contact your state’s unemployment office to learn more about eligibility requirements in your state.  You should also be able to find contact information for the closest unemployment office in your area under the state government section (blue pages) of your phone directory.

How Much You Can Expect to Receive

You will not receive the same pay through unemployment benefits that you were before you lost your job.  It will only replace a percentage of your pay.  The amount of money you will receive through unemployment is based on how long you were working and how much you were earning before losing your job. 

Your state’s unemployment office will first average your weekly pay; you can determine that amount by dividing your salary by 52 or (if you are paid on a weekly or hourly basis), simply add up all of your pay stubs for one year and divide that number by 52.  Then each state uses a formula to calculate the exact amount you will receive.  You will not receive 100%, or likely an amount close to that, of your previous take-home pay in benefits.  When you talk with your unemployment office contact you can ask for an estimate of how much you can expect to receive so that you know how to appropriately budget. 

Once approved for unemployment benefits you will need to do the following to continue receiving payments:

  • file a claim every week (or every other week, depending on your state’s requirements),
  • answer questions about your continued eligibility,
  • report any money you earned from work during the previous week (or two weeks, depending on your state’s requirements),
  • possibly provide proof that you have been searching for a job (i.e. names of organizations with which you have filed an application for employment),
  • report any job offers or refusal of work,
  • possibly register for work with your state’s Employment Office (depending on your state’s requirements), and
  • report to your local unemployment claims office or one-stop/employment service office for periodic updates (if you refuse or fail to show up for the appointment your benefits will be cancelled).

If you are denied benefits you have the right to file an appeal within a certain amount of time.  Your state’s unemployment office is required to inform you of your appeal rights and can provide you with the appropriate contact information and/or paperwork.

Unemployment and Taxes

It’s important to realize that your unemployment pay is taxable, meaning that you will have to pay income tax on the unemployment benefits you receive in just the same way you had to pay tax on the income you earned before losing your job.  You can choose to have the appropriate taxes withheld from your benefits check by your state unemployment insurance agency.  If you do not have taxes withheld you will need to estimate the taxes you will owe and budget to be able to pay that bill when you file your federal and state income taxes.

When Benefits Run Out

Unemployment benefits are only temporary.  They are not meant to replace your work income on a long-term basis.  Because it may take longer for you to find a job than you initially anticipate, it is important that you begin looking for work as soon as possible.  Learn more about issues surrounding job loss and how to find a new job after becoming suddenly unemployed through our UnwantedChange.org website.  

Most states will provide unemployment benefits for only 26 weeks, or 6 months at the maximum.  However you may qualify for extended benefits if you lose your job during a period of high unemployment nationwide.  If benefits are extended you could receive pay for up to an additional 13 – 20 weeks (depending on the state in which you live).  Those benefits are paid out through state and federal funds; you will continue to receive the same amount you had been receiving in regular unemployment compensation. 

Just because you are receiving unemployment benefits you are not guaranteed to receive extended benefits. If you qualify for extended benefits you will receive official written notification from your state unemployment office through the mail.  However that notice does not mean you can expect automatic payment.  You will need to file a new, separate claim for extended benefits.  If you have not received written notification and would like to know if there is a possibility you could qualify for extended benefits contact your state unemployment office.

If you are nearing the end of your benefit period and you cannot receive extended benefits and full-time employment does not appear to be on the immediate horizon there are options to consider, such as:

  • contacting your state’s unemployment office to determine if you are receiving all of the benefits you are entitled to.  Ask them about potential training programs and part-time or seasonal work with the state.
  • looking into temporary work through a “temp” agency to provide a measure of income and possibly network with contacts to find a more long-term position
  • reviewing your budget and making temporary cuts
  • selling investments or assets you currently hold (i.e. mutual funds, timeshare, extra car, etc.)
  • talking with your landlord about potentially reducing your rent (until you find work), refinancing your mortgage to a lower rate, or contacting your mortgage company to request forbearance (temporary financial assistance on your mortgage) while you are unemployed
  • using any remaining emergency savings you have
  • re-evaluating the amount of homeowners’ insurance you are carrying; if your home has decreased in value you may be overpaying and you could use the money you could be saving for more immediate needs
  • applying for emergency assistance grants through  your local social services department
  • asking family members or friends for a short-term low-interest loan
  • reducing your insurance premiums by raising your deductible
  • discussing sliding scale payment fees or creating a payment installment plan with your physicians, children’s schools (if they attend preschool, private school, or college), etc.
  • contacting your place of worship for information on emergency financial assistance and employment programs
  • contacting your credit card companies to alert them of your recent unemployment and discussing an alternate, reduced payment plan while you are looking for full-time work

Try to avoid accumulating high interest-rate credit card debt during this financially difficult period.  In most cases it’s financially wiser to take a loan out against savings you have already accumulated through a retirement plan or against the equity you have built up in your home than using your credit cards for day to day expenses.  If you had a retirement savings plan through your previous employer contact the Human Resources department to learn how you can apply for a loan from your 401(k) as well as if you can leave the funds invested through that plan, or if you need to move the funds to, for example, reinvest them in an IRA.  You should consult your financial advisor to learn about your options and to learn the potential tax consequences of any choices you make so you’re not caught off-guard by a large tax bill months down the road.