What to know about unemployment benefits

Job loss can throw us all over the edge, especially when it comes to our finances. No matter how meticulous you are when it comes to your budget, it’s still complicated.

You have to start re-evaluating your spending and your priorities, and this can be even more difficult, as losing a job can easily turn into a stressful event.

Fortunately, expanded unemployment benefits have been like a breath of fresh air for all the Americans that needed them during the Covid-19 pandemic.

For now, there’s no “fix-it-all” solution to surviving the brand new unemployment budget. However, there might be a couple of effective strategies on how to spend your benefits, how to adjust the budget, and which expenses you should start prioritizing.

The U.S. Department of Labor supervises the unemployment insurance system. However, each state has its own program, sets its own rules, and provides the funds.

The most common state unemployment program will replace half your average wages for up to 26 weeks in normal times, even if benefits can widely differ.

Before job losses became “a thing” in 2020, due to the widespread Covid-19, the average weekly unemployment benefits were $387. Mississippi was the state that offered the lowest weekly benefit, at only $215, while Massachusetts had the highest one, at $550 per week. The Conoravirus Aid, Relief and Economic Security Act (CARES Act) gave $600 a week from federal funds for unemployed workers, besides their regular state benefits.

Around 76% of unemployed workers were bound to make more from unemployment than they did when they had jobs. The weekly supplement ended in July 2020.

Also, in December 2020, a relief bill to support unemployment was successfully applied. It came as an addition to regular state benefits, with an extra $300 a week, besides $100 for some self-employed workers, and it was rapidly spent on March 14, 2021.

Plus, the American Rescue Plan that passed in March, came with an extra $300 a week through September 6, 2021.

The first plan for taxes

The benefits you receive when you’re unemployed are taxable income for federal tax purposes, even if the rule was waived in 2020 for unemployment benefits up to $10,000 for those with adjusted gross incomes (AGIs), but not more than $150,000.

From this point, you had to report any unemployment compensation when you filed your tax return. You can have 10% of your benefits withheld for taxes, and you can do that by filling out form W-4V with the Internal Revenue Service (IRS).

However, this was only voluntary, and it will only happen if you request it. There’s no certainty that 10% is enough to cover your tax obligation, and also there’s no other option to withhold more money.

Also, there are other thirty-five states that tax unemployment benefits. It would make more sense to have your tax withheld from your benefits, as long as it would still leave you with enough finances to pay for everything that means basic expenses and needs.

It would be extremely beneficial in matters of tax liability down the line. However, not having taxes withheld whatsoever can be a better move if it’s extremely difficult for you to pay your bills, as Leslie Tayne, a New York-based debt settlement attorney and the founder of Tayne Law Group, explained.

Adjust your spending

When you start planning on an unemployment budget, you should consider which expenses you need to survive. Tayne recommended ranking your expenses, depending on their importance. “Groceries, mortgage, rent payments, utilities, and health insurance are a top priority” she explained. ”

If you have been paying down credit card debt, but now you have to face unemployment, consider shifting the focus to more important bills and pay the minimum on your credit cards if you need to do that.”

Analyze all the expenses that ended up on the “least important” list, and start cutting what you think it’s not useful for the moment, such as a gym membership, Netflix subscription, or any other streaming service.

There are many ways in which you can cut costs even on your basic expenses, especially when it comes to groceries. “You could start shopping at more low-cost grocery stores in the area you live in, like Lidl and Aldi,” Tayne explained. “Food staples are way cheaper there, compared to the usual grocery places.”

Prioritize your rent

It’s highly important to prioritize rent on your new unemployment budget. A nationwide ban on evictions was pushed through September 30, 2021, by the Centers for Disease Control and Prevention (CDC), but the U.S. Supreme Court decided to overrule that extension on August 26, 2021, ending the whole moratorium.

The Court’s decision was based on the fact that CDC had seemingly overstepped its authority. The moratorium didn’t prevent unpaid rent from continuing to accrue.

All it did was decide that tenants couldn’t be evicted for not paying during that particular time. Landlords were evenly entitled to apply late fees, penalties, and even interest in the period of time the rent remained unpaid.

Tenants might have discovered that they owed a lot of debt to their landlords when the moratorium ended. Landlords have been free to file or even resume eviction proceedings starting on August 26.

Ask for a hardship agreement

You can speak with your bank or credit card lender to consider a hardship agreement if your current unemployment benefits don’t cover all your unpaid bills.

There are many banks that aren’t advertising any more Covid-19 relief programs, but they might still allow you to spread out or even push back payments on a case-by-case basis.

You might be able to pause or reduce your payments for as much as 360 days if you’ve been affected by Covid-19 and your mortgage is federally backed or insured.

Build your own emergency fund

Job loss is definitely one of the main reasons to jump in the car and create an emergency fund right away. Think about putting money toward a rainy day fund, before paying more than the minimum on your debt, if there’s any money left.

It will be a safety net for you, especially in case of an unfortunate event. Your unemployment benefits might expire before you manage to find a new job.

Knowing that you have secured your housing, keeping your utilities on, and managing to maintain adequate food and health care are more vital than paying off debt. Saving cash now will help ensure a certain feeling of safety, without being obliged to go deeper into debt.

Focus on high-interest debt

You can use your high-interest debt after you have three to six months’ worth of expenses put away. We suggest prioritizing your debts with the highest interest rates because that’s credit card debt for most people.

Payments and interest on student loans that are owned by the Department of Education were officially suspended through Jan. 31, 2022, because of the Covid pandemic.

The relief was successfully extended until Aug. 31, 2022. So take advantage of this moratorium and start building an emergency fund, then pay down the rest of the debt accruing interest, in case you have federal student loans.

The idea

Unemployment compensation is not enough. While relief measures made the benefits more generous, expanded benefits still can’t stretch far enough for some Americans. It’s highly important to ask for hardship agreements and scrutinize your spending.

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