What Is Unemployment Compensation?
Unemployment compensation is designed to provide a source of income for workers who lost their employment through no fault of their own or due to layoffs, retrenchment, and restructuring. It is also termed as “unemployment insurance”, “unemployment payment”, or “unemployment benefits“.
There are various types of unemployment benefits available and the regulations vary from country to country. In the U.S, benefits are paid by a government-run insurance system instead of taxes on individual citizens. Individuals may receive partial compensation for lost income when they’re unemployed and when they need time to recover. Coverage can be different depending on the status of the person or entity. For that, unemployed workers are required to meet a specific set of eligibility criteria set by the U.S. Department of Labor (DOI).
The unemployment compensation program was initially introduced as part of the Social Security Act in 1935, with the aim of providing support for millions of people who lost their jobs due to the Great Depression of 1929. The Social Security program has provided people with a financial safety net and has served as an important source of insurance protection against income loss.
Am I Eligible For Unemployment Benefits?
In order to be eligible for unemployment compensation, workers must satisfy certain eligibility requirements set by federal law. Each state has a separate Unemployment Insurance (UI) program, but all the states have to abide by the rules & guidelines set by federal law. For example, eligibility may depend on the income of the worker, marital status, meeting your state’s work and wage requirements, etc.
A few of the conditions required to be eligible for Unemployment benefits are mentioned below.
- If you’re unemployed through no fault of your own – All employees are not eligible for unemployment compensation. Wage-earners who lost their jobs through no fault of their own (business closed, or no work available, etc) can apply for unemployment compensation.
- Check the work and wage requirements – In order to be eligible for unemployment benefits, most states instruct you to maintain a minimum amount of time in your current state of employment, also known as the “base period”. This varies depending on whether you were laid off, or if you quit.
- Meet state-specific eligibility requirements – Each state has its own set of eligibility requirements. For example, few states impose a state income tax while others don’t. Therefore, workers must meet their state’s requirements for wages earned and time worked to collect unemployment benefits.
Apart from the conditions mentioned above, workers must be willing to work, available for work, and should be actively seeking work. Workers must meet all the eligibility requirements set by the respective state. For example, submitting reports of earnings each week (if any), filing a weekly certification, etc.
Note: As each state has different requirements, it is better to check with your state unemployment office to know more about the eligibility, application process, and benefits to be received by the worker under Unemployment Insurance Program.
How Can I Apply For Unemployment Benefits?
Most Americans are acquainted with the fact that they are eligible to receive unemployment benefits while looking for employment opportunities. It allows an individual to focus on finding a new job as well as offers them a small amount of financial support while they search for work. However, they may not know how much or when they can receive this money.
States offer different types of benefits, but most programs allow beneficiaries to receive weekly payments while looking for work. To receive unemployment compensation, workers must file a claim with the UI program in the state where they worked recently.
Steps to apply for Unemployment Insurance:
- Connect with your state’s UI program and visit their official website to find out if you should file a claim in-person, via call, or online.
- You must file a claim for the UI program from the state you worked. If you have worked in multiple states or are residing in another city, contact the UI program of your state and seek help from them to locate those claims.
- Make sure you provide complete and error-free information when filing for unemployment compensation. The state may contact your former employer for a reference or your current employer to verify the dates of separation from work and last wages reported to the state. You should report all changes as soon as possible.
- Your weekly unemployment benefits depend upon your previous wages and may vary from state to state. Therefore, you should receive your first benefit check after two to three weeks. Some states will require a one-week waiting period, during which you will not be paid.
Note: Citizens receive unemployment insurance for a limited period, typically 26 weeks, although some states offer less or more in times of higher unemployment.
State Unemployment Insurance Offices:
To find the details of the State Unemployment Insurance Offices, workers must visit the official website of the U.S Department of Labor. They have assembled all the data like the state, agency name and phone numbers, and the official website of the UI program offered by the respective state.
Are Unemployment Benefits Taxable?
Yes, unemployment benefits are taxable. Unemployment benefits must be reported on your federal tax return as a part of your income. In addition, if your unemployment benefits are taxable in the state where they are received, they may be taxable on your state tax return as well. Regardless of where you live or how much money you make from your job, all income must be reported on your federal and state tax returns.
As per the American Rescue Plan Act enacted on March 11, 2021, if your modified Adjusted Gross Income (AGI) is less than $150,000 and you received unemployment compensation in 2020, you will be able to exclude up to $10,200 of the total unemployment compensation amount that you received in the year on your 2020 tax return only and if your modified AGI is more than $150,000, you cannot exclude any unemployment benefits.
How Much Are Unemployment Benefits In The USA?
The amount of unemployment benefits you receive may vary depending on your income and the number of quarters you have worked. Each state has its own UI program, but most U.S. states offer unemployment benefits for up to 26 weeks, ranging from $235 a week to $823. As per a few reports, Montana provides unemployment benefits for up to 28 weeks, whereas few states like North Carolina and Florida offer unemployment compensation for the shortest length of time with a maximum of 12 weeks.
Am I eligible for the exclusion, if I have an IRS Individual Taxpayer Identification Number (ITIN) instead of a Social Security Number (SSN)?
Yes, you are eligible for the exclusion if you have an ITIN issued by Internal Revenue Service (IRS). ITIN is a nine-digit tax processing number only available to certain nonresident and resident aliens, their spouses, and dependents. They are eligible if they have a modified AGI of less than $150,000 regardless of their filing status.
Am I Eligible For The Exclusion If I’m a Non-Resident Alien Who Files Form 1040-NR?
Yes, you are eligible for the exclusion if you are a non-resident alien who files Form 1040-NR. A nonresident alien is a person who has not passed either the substantial presence test or green card test. If your modified AGI is less than $150,000, then you should exclude up to $10,200 of your unemployment compensation in 2020. In addition, if your spouse receives nonpayroll income, such as unemployment compensation, you must include that income on your federal tax return. Even if you claim your spouse as a dependent on your return, you can’t exclude any of their unemployment compensation that’s not reported on your tax return.