Millions of Americans, many of whom have never filed for unemployment before, are now relying on it as their primary source of income until the COVID-19 pandemic subsides. Thanks to the CARES Act, they can now look forward to an extra $600 per week, and they can claim benefits for up to 13 weeks longer than they normally could.
Whether you've filed for unemployment in the past or not, things are a little different right now due to the pandemic. Here are a few things you should know before you sign up for unemployment benefits.
1. Unemployment benefits are taxable
You'll owe taxes on unemployment benefits just like you would on your normal income if you were still working. How much you'll owe in taxes depends on what tax bracket you fall into. If you're earning less on unemployment than you were when you were working, you may owe less in taxes this year than you're used to owing because your income might be lower than it has been in years past.
If you're earning more on unemployment than you normally do at your job thanks to the extra $600 per week from the CARES Act, you could owe more in taxes this year than you're used to. That could result in you getting a smaller tax refund, or possibly even owing money to the government.
If you're concerned about this, try to set aside some money for taxes when you're able to, or contribute some money to a tax-deferred retirement account to help lower your taxable income.
2. Not everyone gets approved
The CARES Act expanded unemployment eligibility, allowing some groups, such as self-employed individuals, to claim benefits even if they historically haven't been able to. Individuals who quit their jobs due to COVID-19-related concerns are also eligible to collect unemployment during the pandemic. However, there's more criteria than just losing your job.
Most states determine who's eligible for unemployment by looking at their earnings during a base period. This is usually the first four of the last five completed quarters. That's October 2018 to September 2019 if you applied in March, or January to December 2019 if you applied in April. You must earn a certain amount, which varies by state, during the base period to qualify for unemployment. Some states also require you to earn a certain amount of money in your highest-earning quarter.
If you don't meet these requirements, you won't qualify for unemployment benefits, even in the midst of the COVID-19 pandemic.
3. The size of your check varies by state and income level
Your regular state unemployment benefit varies significantly depending on where you live and how much income you earned during your base period. The CARES Act adds another $600 per week on top of your regular benefit amount, but your state and base period earnings still matter.
Every state calculates benefits a little differently, so you'll have to check with your unemployment office to see how much you qualify for. Many states have an unemployment claimant handbook or other help resources on their websites that can help you identify how much you can expect from unemployment. Add another $600 per week to this amount during the pandemic.
4. You must file a weekly or biweekly claim
Once you've applied for unemployment, you must submit regular claims in order to receive your checks. Some states require weekly claims, while others require biweekly claims. Your state should inform you of what you need to do to get your checks after you sign up for unemployment. You must submit your claims on time if you don't want any interruptions in your unemployment checks.
You can file your claim through your online unemployment account or by phone. Filing online is best given that unemployment offices are overwhelmed at the moment, and phone hold times are longer than normal. Set reminders for yourself if you're worried about forgetting to submit your claims.
5. Some states are setting up schedules for submitting unemployment claims
Some states are now limiting the days and times you can file unemployment claims depending on the first letter of your last name in an effort to avoid overwhelming the unemployment websites and phone lines. If your state does this, it should post the schedule on its unemployment site. Make note of when your appointed day and time are, and do your best to file your claims within this time slot.
6. Waiting periods and work search requirements are generally waived right now
Many states impose a one-week waiting period before they'll start paying you unemployment benefits. But in these challenging times, people need money quickly, so most states are waiving the one-week waiting period. That doesn't mean you'll get your money immediately, though. It still takes some time to process your application, especially right now.
States also require you to prove that you're actively seeking new employment in order to continue receiving unemployment benefits normally. But many of those out of work right now already have jobs but are unable to do them because of the pandemic. Even those without jobs would have a tough time finding a new one with so many businesses closed. For these reasons, most states have waived their work-search requirements, at least until the stay-at-home orders are lifted.
7. How long you can claim benefits varies by state
The number of weeks you can claim benefits is also dictated by your state, though the CARES Act extends how long you can claim unemployment, no matter where you live. Most states enable you to claim benefits for up to 26 weeks, and the CARES Act adds up to 13 additional weeks of eligibility for these states. Check with your state unemployment office to learn how long you're able to claim unemployment benefits.
Unemployment is a useful lifeline in these unprecedented times, but just like with any other source of income, you should understand what you're getting into before you apply. Review the terms and how this money will impact your finances now and at tax time so you don't encounter any unpleasant surprises.