What Is Unemployment Income?
Let me explain what unemployment income really is. It's an insurance benefit you get paid when you can't find gainful employment, drawn from federal or state-sponsored funds. You have to meet specific criteria, like actively trying to find a job, to receive it. Employers and employees pay payroll taxes to fund this benefit.
You might also hear it called unemployment benefit, unemployment compensation, or unemployment insurance. It's most relevant when you're filing your tax return, because you must report this income.
Key Takeaways
- Unemployment income is paid by the government temporarily to unemployed workers who have lost their jobs due to layoffs or other reasons not of their own fault.
- The goal of unemployment income is to provide a social safety net to those individuals who have become unemployed while looking for a new job.
- Typically, unemployment is treated as ordinary income for tax purposes and must be reported to the IRS.
- Under normal circumstances, most states pay a maximum of 26 weeks of unemployment benefits, but benefits can be extended or augmented during an economic crisis.
- If you quit your job, you must have a reasonable cause, or you will most likely not qualify for unemployment.
Understanding Unemployment Income
Unemployment benefits started back in 1935, alongside Social Security. They're meant to give you a basic income for a limited time, so you can focus on finding another job.
In the U.S., if you're jobless and qualify, you get this income. You need to have worked at least one quarter in the previous year and been laid off by your employer. You must be actively seeking work to claim and keep getting benefits. Temporary workers or those paid off the books don't qualify, and neither do people who quit or were fired for misconduct.
Your claim can be denied for reasons like quitting without a good cause—such as medical issues or family care needs—or if you're not available for work, were terminated for misconduct, refused suitable work, or if unemployment stems from a labor dispute.
Remember, unemployment income is fully taxable as ordinary income. You'll get a Form 1099-G at year-end showing what you received, and you report it on your 1040 form.
Unemployment Income Amounts
Each state decides your weekly unemployment income amount, and it can differ a lot between states.
For instance, Minnesota offers one of the highest maximums at $762 per week, but Massachusetts tops it at $855 with up to 30 weeks. Florida, on the other hand, has a lower $375 weekly max and only 14 weeks, making it less generous.
In high unemployment periods, like the Great Recession, payments could last up to 99 weeks. When unemployment is low, it's usually about six months or 26 weeks in most states, though some offer less.
The COVID-19 Pandemic and Unemployment Income
On March 27, 2020, President Donald Trump signed the $2 trillion CARES Act, which set up unemployment benefits for those affected by the pandemic.
This law expanded eligibility to include self-employed people, freelancers, and independent contractors who normally wouldn't qualify. It created three programs: Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment Compensation (FPUC), and Pandemic Emergency Unemployment Compensation (PEUC). All these ended on September 6, 2021.
Keep in mind, while the American Rescue Plan extended federal relief to September 6, 2021, some states ended their participation in FPUC and PEUC early. Check with your state's unemployment office for the status and duration of your benefits.
Pandemic Unemployment Assistance (PUA)
Under PUA, benefits expanded to cover people who don't usually qualify. They're based on your previous earnings, using a formula from the Disaster Unemployment Assistance program.
The minimum was 50% of a state's average weekly benefit, around $190 at the time.
Federal Pandemic Unemployment Compensation (FPUC)
The CARES Act's FPUC added an extra $600 weekly to unemployment income until July 2020.
This was extended by the Consolidated Appropriations Act in December 2020, reducing it to $300 per week from December 26, 2020, to March 14, 2021. President Joe Biden's American Rescue Plan Act in March 2021 extended the $300 weekly benefit until September 6, 2021.
Pandemic Emergency Unemployment Compensation (PEUC)
States normally give 26 weeks of benefits, but PEUC under CARES added 13 more weeks, requiring you to be able to work, available, and actively seeking work.
The CAA extended it to 24 weeks in December 2020, and the Biden Administration bumped it to 53 weeks in March 2021, with PEUC expiring on September 6, 2021.
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