Unemployment Insurance: What You Need to Know
Unemployment insurance (UI) is a program designed to offer temporary financial support to those unemployed. Unemployment insurance is a jointly-owned program of the state and federal governments. Although individual states implement their own requirements, they all follow the same general guidelines.
Remember, not everyone who loses their job qualifies for UI. If you are eligible, expect to receive an amount equivalent to a portion of your total earnings. The state will look at the last 52 weeks. On average, states payout for about 26 weeks.
How Does Unemployment Insurance Work?
There are many tools to help you be more financially sound, such as budgeting and making logical investments. However, the challenges become different when you try to manage your money while unemployed. Not having a steady income can minimize flexibility and options.
The Federal Unemployment Tax Act of 1939 began unemployment insurance. The federal and state governments have a jointly-owned program that provides temporary financial support to help people who’ve lost their jobs through no fault of their own. This includes the downsizing of an organization or company bankruptcy.
Each state has its specific eligibility requirements and payout periods, but they all follow the same guidelines set by the federal government. However, you can generally claim benefits for up to 26 weeks. It allows you to get a portion of your annual wages as a weekly stipend.
Federal Unemployment Tax Act (FUTA)
We know the Federal Unemployment Tax Act (FUTA) funds unemployment insurance. But where does the money come from?
FUTA requires all businesses with employees to pay a payroll tax. Organizations owe FUTA tax on the first $7,000 they give every employee as their salary in a calendar year.
The 2022 FUTA tax rate is at 6%. The organization remains responsible for determining how much of the $7,000 it has paid each quarter. Remember, FUTA only affects the business — deductions are not taken from the employees' wages.
Although all 50 states and the District of Columbia administer unemployment insurance, it doesn't mean everyone who doesn't have a job is eligible.
Understanding when you can file a claim to receive temporary support is crucial. Since every state implements a version of the program, requirements may vary between locations.
MoneyGeek highlights these below.
Unemployed Through No Fault of Your Own
People experience unemployment for different reasons. In most cases, it’s out of the individual’s control. One example is when a business decides to downsize or shut down permanently. Navigating a layoff is stressful, and people who experience it can file claims to receive financial support while looking for work.
Meet Work and Wage Requirements
States typically set a base period. It refers to a minimum accumulated salary you should have received or a specific period you should have worked. Unless you meet these, you won't be able to file for unemployment insurance.
Losing a job can be a major blow to you and your finances — and finding work elsewhere can take time. Fortunately, some government agencies provide assistance in this area.
Their services include the following:
- Informing you of training programs that may help upskill you
- Resume writing, practice interviews and other training during the recruitment process
- Advising you of any job openings (in your area or, if you're relocating, to where you're moving)
Although government agencies don't guarantee jobs, they can increase your chances of getting hired and starting a new career.
Duration of Benefits
Now that you have a better understanding of what unemployment insurance is, let's look at the benefits provided. Specifically, how long you're eligible to receive them. Remember, the main objective of UI is to provide financial support, but only temporarily.
How Long Do Unemployment Benefits Last?
Benefits can be paid for a maximum of 26 weeks in most states.
Extended benefits may be available during times of high unemployment.
Benefits are subject to federal income taxes and must be reported on the individual’s federal income tax return.
Applying for Unemployment Insurance
Once you determine that your situation allows you to qualify for unemployment insurance (UI), the next step is to apply. MoneyGeek breaks the process down into three action steps.
Find Your State’s Unemployment Office
Every state has a unique UI program. It's best to contact them immediately after losing your job to learn of your state's requirements and whether or not you meet them.
File a Claim Thoroughly and Truthfully
File a claim with your state's UI program. Claiming benefits can be done online or by phone. Both channels require you to provide information, such as where you used to work, your employer's address and how long you worked there. Ensuring that you provide complete and accurate details will help prevent delays.
Wait 2-3 Weeks for Your Claim to Be Processed
Once you've provided all the necessary information, it's a matter of waiting. Your first check should come in two to three weeks after you file your claim.
You should file your UI claim in the same state where you worked. However, sometimes people decide to move after comparing the cost of living between states. Your current state's UI agency can give information on filing a claim in another state if you moved or worked in multiple areas.
Staying Eligible for the Program
Although the payout period of each state is different, most have a maximum of 26 weeks. Ideally, you should be able to obtain new employment within this time frame. However, that's not always the case. In some situations, you may need more time.
To ensure you remain eligible for unemployment insurance, do the following consistently:
- Continue to file claims (you may have to do this weekly or bi-weekly, depending on your state)
- Actively seek employment and remain eligible (and ready) to work
- Report earnings, job offers (and those you declined) each week
- Make a physical appearance at the claims office or American Job Center if requested
Remember, your state may have other eligibility requirements. Gather the information specific to your state to avoid any issues or delays to your benefits.
Scenarios Where You Could Be Denied Unemployment Insurance
Besides not meeting your state's eligibility requirements, several situations may disqualify you from receiving unemployment benefits. It's best to know what these are if you want to receive unemployment insurance.
Voluntarily leaving work without good cause
A primary requirement for unemployment insurance (UI) is being unemployed due to a lack of available work. Resigning from your organization does not make you eligible for UI.
Being discharged for misconduct connected with work
Although the definition of misconduct varies between organizations, it typically involves a deliberate act that disregards your employer's interest. Examples include embezzlement, violating company policies and theft.
Not being able or available for work
Some conditions may stop you from working even when a job becomes available, such as being on maternity leave or having a temporary disability. These may prevent you from receiving unemployment benefits.
Not actively seeking work
Although your weekly stipend may keep you afloat, it shouldn't become your sole source of income. You must report the number of applications you've completed weekly to receive UI.
Refusing an offer of suitable work
You don't have to accept the first job offer that comes along. However, refusing an offer within your skillset or similar to what you did formerly may lead to losing your benefits.
Making false statements
Giving inaccurate information, such as getting a new job so you can continue receiving benefits, may have serious consequences. Besides losing UI, you may have to repay it or face jail time.
Unemployment Insurance During COVID-19
The arrival of COVID-19 was a game-changer. It increased unemployment from 6.2 million in February 2020 to 20.5 million in May 2020. As a result, former President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020.
It gave way to the following benefits for individuals who lost their jobs due to the pandemic:
- Federal Pandemic Unemployment Compensation (FUTA): This benefit allowed unemployed workers to receive an additional $600 per week. Its first incarnation ran until July 25, 2020, after which it expired. On December 26 of the same year, policymakers readjusted the benefit to an additional $300.
- Pandemic Unemployment Assistance (PUA): It expanded the population that qualifies for unemployment insurance. This way, individuals who previously couldn’t file a claim found a way to receive unemployment benefits. These included freelancers, self-employed workers and independent contractors — even those who didn't meet wage and work duration requirements qualified for assistance.
- Pandemic Emergency Unemployment Compensation (PEUC): It extended the payout period after individuals maximized the typical unemployment benefit.
The following administration under President Biden gave way to the American Rescue Plan, a modification and extension of the CARES Act. It expired in September 2021.
Unemployment Insurance FAQ
Although MoneyGeek hopes that unemployment is not a season you have to experience, it's essential to understand how it works and how to stay financially stable until re-employed. We gathered commonly asked questions on this subject. These answers may help you during unemployment.
Expert Insights on Unemployment Insurance
Reading about unemployment insurance is one thing, but it also helps to learn directly from subject matter experts and industry leaders. MoneyGeek reached out to several sources for their insights about unemployment benefits.
- There are apparent advantages to claiming unemployment benefits, but are there drawbacks? If so, what are they?
- What advice can you share with the average American to help them make the most of their unemployment insurance?
CEO & Founder of Choice Mutual
Chief Financial Officer of Investing Basic Rules (IBR)
Founder & CEO of Seniors Life Insurance Finder
Unemployment is a challenging place to be in. Try to remember that it is temporary. Fortunately, plenty of resources online can help you manage your circumstances better.
- Resources for Workers Impacted by Coronavirus Layoffs and Lost Wages: Read about various strategies that can help you stay afloat after losing a job.
- The Ripple Effects of Coronavirus-Related Lost Jobs and Wages: No business sector was unaffected by the pandemic. See how various industries affect each other in terms of unemployment.
- American Employment and the Pandemic: COVID-19 Cases and Job Recovery by State and Political Affiliation: The country is slowly recovering from the effects of the pandemic. However, each state is recovering differently. MoneyGeek’s page highlights those states that have seen the most improvement and those that continue to struggle.
- Starting a New Career: You can see losing your job as a setback or an opportunity to find a new career. This page provides information to help you get back on track.
- Social Media and Your Job Search: Social media platforms aren’t limited to posting life updates. You can also use it to find your next job. MoneyGeek shows you how.
- The Top Cities for U.S. Job Seekers in 2022: Some people consider relocating after becoming unemployed. If this is you, make sure you’re moving to a state with more opportunities.
About the Author
- CareerOneStop. "Find Local Help." Accessed December 4, 2022.
- CareerOneStop. "Unemployment Benefits Finder." Accessed December 3, 2022.
- Center on Budget and Policy Priorities. "Historic Unemployment Programs Provided Vital Support to Workers and the Economy During Pandemic, Offer Roadmap for Future Reform." Accessed December 4, 2022.
- Internal Revenue Service. "Federal Unemployment Tax." Accessed December 3, 2022.
- Internal Revenue Service. "Instructions for Form 940 (2022)." Accessed December 3, 2022.
- National Academy of Social Insurance. "What is Unemployment Insurance?." Accessed December 3, 2022.
- Pew Research Center. "Unemployment Rose Higher in Three Months of COVID-19 Than It Did in Two Years of the Great Recession." Accessed December 3, 2022.
- U.S. Department of Labor. "State Law Information." Accessed December 3, 2022.
- U.S. Department of Labor. "Significant Provisions of State Unemployment Insurance Laws — Effective July 2022." Accessed December 3, 2022.