Whether your company made staff changes, the economic impacts of Covid-19, or other various reasons, you’ve been let go. That income that you’ve been relying on has dried up. Now what do you do?
Most people panic. Instead of panicking, you need to get to work on the solution: creating income for yourself and your family both in the short term and the long term.
Luckily, the government understands that hard times fall on good people and sometimes, losing your job and your income isn’t a result of your work performance.
That’s why the federal government and state governments have joint programs that provide unemployment benefits for the short term.
But there is confusion about unemployment and the benefits you can receive. In this article, we’ll provide answers to the question “how does unemployment work” by breaking down:
Ready? Let’s dive into the intricacies of unemployment by first explaining what unemployment is.
What Is Unemployment?
Simply put, unemployment refers to those who are jobless and are seeking work.
Workers can lose their jobs for a variety of reasons, including:
Unemployment benefits are provided in a program that’s jointly run by the federal and state governments.
How Is Unemployment Calculated?
Some of the confusion around the question of how does unemployment work is how it is calculated.
Each state calculates benefits differently.
According to EmploymentLawFirms.com, most states will use an applicant’s earnings during the highest-paid calendar quarter of the base period as a starting point.
Keep in mind that for most states, the base period is the earliest four of the last five complete calendar quarters an employee worked before becoming unemployed.
On the other hand, some states use the two highest-paid quarters of the base period.
All states take prior earnings into account in some way.
On your state unemployment, you’ll be able to find out how much unemployment you can receive based on the calculators provided.
How Much Does Unemployment Pay?
When someone asks how does unemployment work, he or she may be referring to how much unemployment pays.
If you are eligible and you receive unemployment benefits, the amount will depend upon:
Keep in mind that every state also has a minimum and maximum benefit amounts. You cannot exceed the maximum.
For example, here are a few maximums per week:
How Long Can You Collect Unemployment?
Many states offer unemployment benefits for up to 26 weeks, or half a year.
How To Determine If You Are Eligible For Unemployment Benefits
Just because you lost work doesn’t mean you’re automatically eligible for unemployment benefits.
According to the Department of Labor, while each state sets its own unemployment insurance benefits eligibility guidelines, but you usually qualify if:
Cases When You’re NOT Eligible For Unemployment Benefits
There are instances when you aren’t eligible for unemployment. This can include:
Changes To Unemployment Benefits During the Covid-19 Crisis
Unemployment benefits during the Covid 19 crisis have been significantly expanded because of The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed on March 27, 2020.
The law provides:
You may also qualify for unemployment benefits during the covid-19 crisis if you:
How To Apply for Unemployment Benefits in 3 Steps
If you have been recently let go, let’s break down how you can apply for unemployment benefits today in 3 simple steps.
Step 1: Contact your State’s Unemployment Office
As soon as possible, visit your state’s unemployment website or find a local unemployment office.
Step 2: Information and Paperwork
After you find out your state’s requirements for applying, the next step is to gather all the information.
The information that you will need to provide will vary from state to state. Here are a few examples:
California
You will need to provide::
Texas
You will need to provide:
Virginia
You will need the following information to file your claim:
Step 3: File a Claim
After you enter in all your information, ensure that it is accurate and you can file the claim.
If you meet eligibility requirements, you should receive your unemployment benefits either via direct deposit or a debit card in 2-3 weeks.
4 Options for Health Insurance During Unemployment
If you have been receiving health insurance through your employer, it will likely be voided by the end of the month.
Living without health insurance is a risk. If you or a family member has an accident or emergency, you could be on the hook for hundreds of thousands of dollars in medical bills — and this could lead to significant medical debt.
Instead of facing this risk, there are ways that you can obtain health insurance during your unemployment. Here are 3 options.
Option 1: COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that may allow you to stay on your employee health insurance after your job ends, usually for 18 months.
In order to do so, you will have to pay the full premium yourself, plus a small administrative fee.
For more information on COBRA, click here.
Option 2: Marketplace Health Insurance
Another option is to buy health insurance on the government marketplace.
Although enrollment only occurs during specific periods, if you lose your job, you may qualify for the “Special Enrollment Period”, which means that you can buy insurance outside the yearly Open Enrollment Period within a 60-day timeframe.
To explore this option, visit HealthCare.Gov.
Option 3: Private Health Care Plans
While this may require you to pay a high deductible, you can buy private health insurance directly from an insurer in your area.
Option 4: Medicaid
Medicaid provides health coverage to low-income adults, children, pregnant women, elderly adults, and people with disabilities.
To find out if you are eligible, click here.
Tax Implications of Unemployment Benefits
Another facet to the question “how does unemployment work”: it’s important to keep in mind that there are tax implications of the unemployment benefits you receive because the unemployment benefits are considered by the IRS as to be taxable income.
If you receive benefits, state unemployment divisions will issue you an IRS Form 1099-G.
Also, when you receive benefits, you can choose to have income taxes withheld from your compensation to avoid owing a large amount of tax on your tax returns.
Side Hustles and Unemployment
While you seek unemployment, you do have the option of making money on the side — with a side hustle. If you do, keep in mind that it will have an effect on how much unemployment you can receive.
You must report your earnings to the state unemployment agency, which will determine whether your unemployment benefits should be reduced to reflect those earnings.
If you want to do a side hustle, consider these:
Here are 5 side hustle options:
To see our full list of 101 side hustles, click here.
4 “Audits” To Do While Unemployed
Being unemployed is not only difficult financially; it’s also psychologically difficult being thrown out of your work routine and losing co-worker friends. Losing a job might even have you searching for purpose and meaning
After you file for unemployment benefits, you will have more time on your hand than usual. This is something you can use to you advantage by looking at your career, health and finances and examining what changes, if any, should be made.
There are 4 audits you can do during unemployment:
We’ll look at each one in depth next.
Financial Audit
You can use the time to make a plan to get your finances in order — if you haven’t already. This can include:
Career Audit
You can utilize this time to explore if the career path you’re on is best for you — or if you should make a change. Did you like your job? Did you like your day to day routine? Did you feel fulfilled?
Health Audit
How is your health? Do you feel stressed and burned out, or energetic and happy? Take time to do a health audit:
Get a Financial Education
You can also take this time to get a financial education and take control of your personal finances.
Why is a financial education important?
Not only did schools not teach us how to handle money; a financial education is the difference between:
You can learn how to get out of debt, boost your active income and start investing for passive income by taking our free Wealth-Building 101 Course — it won’t cost you a penny.
How Does Unemployment Work?
Now that you know an answer to how does unemployment work, remember that when you face unemployment, don’t panic. Instead, get to work on finding a solution.
If you’re eligible, you’ll be fortunate enough to have income for the short term.
And for the long term, reevaluate yourself and your career path to make any changes necessary.
Years from now, you can look back on your time unemployed as a terrible and wasted time, or an opportunity where you asked yourself the hard questions and set yourself on a different path.
The choice is yours.