Happy day to you. This is Ken Kaufman, and I’m thrilled you’re here for episode number 54, “Unemployment Benefits.” I’m continuing my series on doing what I can to try to help those who have been hit hard and devastated financially in some way by the coronavirus. Today, I wanna help by giving some education on what unemployment is, how it works, and how to engage in the process correctly, compliantly, and effectively.
So, what exactly is this whole concept of unemployment and unemployment insurance, unemployment benefits? You’ve probably heard a lot of these phrases thrown around. And why would I focus on this?
Well, things just got really, really intense here in the United States. Let me give you some context. Up until a few weeks ago, the single largest week of unemployment claims… These are people who were out of work or whose pay or wages were reduced significantly in a manner that caused them to, you know, lose income. And the single largest week of people who filed unemployment claims dates all the way back to March 28th of 2009 when there were 665,000 claims made. So, that’s the number of people that were out of work and who went to their state unemployment office or through the website and submitted a claim or tried to file for benefits. If you jump ahead exactly 11 years to the weekend in March 28th at the time of this…of 2020, and at the time of this recording, that’s the most recent weeks data that we have access to, it’s not 665,000. It’s 6.6 million jobless claims or unemployment claims were made. That is a 10 times increase, 10 times higher than the highest week ever in the history of America.
So, no wonder that all of the state unemployment filing portals are timing out, and so many are complaining that they can’t complete their online applications, and they can’t get a hold of anybody at their state unemployment offices. Gotta be patient and stick with it. In fact, we’ve been hearing that between 2 and 4 a.m. is often the best time to get online and apply through those online portals. But that statistic is not all.
The week before, so, not March 28th of 2020, but the week before, March 21st of 2020, we saw 3.3 million unemployment claims filed. That is five times greater than that record week that I mentioned all the way back to 2009. So, combined, we have seen in the last two weeks almost 10 million Americans file for unemployment. And when I run my math on this, that works out to about 7% of Americans who are out of work, who have lost jobs during this two-week period. This is absolutely unheard of, never before seen, this job loss carnage leaving so many Americans in the wake of trauma, anxiety, fear, pain, and despair.
Now, many of us are impacted personally by this. And many of us have very little experience interacting with the government to receive some type of a benefit. Some of us might be more experienced than the others. But the purpose of this episode is to give some good education and information to help us understand the landscape of unemployment benefits.
And let’s start with the objective of unemployment programs in general. They are designed as temporary income replacement when income is lost through no fault of your own. So, there are some keywords in there. The first one is temporary. The second one is an income replacement. And the third one is when your income is lost through no fault of your own. So, if you quit a job, unemployment isn’t an option. Even in today’s day and age, if you quit or if you are let go because you’ve done something that has significantly or grossly violated company’s policies and procedures and they had to let you go, those things will not allow you to file for unemployment.
However, if you’re laid off, if you’re furloughed, if your employer lets you go or terminates you…there’s a lot of different terms, but in essence, they’ve let you go, and especially right now, if it has anything to do with economic challenges of your employer because of COVID-19, they’ve had to close stores or close offices or reduce work force dramatically because they’ve had a huge loss of business, all related to the coronavirus or this COVID-19, all of those things will mean that you qualify to be able to apply for unemployment insurance benefits.
So, where do the funds come from? Before we jump into how to apply, I wanna talk for just a second about where the fund come from to be able to pay for unemployment benefits when somebody loses a job in this fashion or this form that I just described. There’s two sources. The first one is from the federal side, and the second one is from the state side. We’ll talk about the federal first.
You may not know this, but your employer pays a tax to the federal government on the first $7,000 of wages that you earn every year. And that tax is 6% of that first $7,000 or it works out to $420 that your employer pays into the federal unemployment program. And it’s considered an insurance program because not everybody loses their job, and we’re funding in, and then the federal government has money available to be able to help to pay for a small percentage of the population that’s unemployed.
Now, in this day and age where we’ve got 10 million claimants against roughly 150 million total jobs where about 7% of the work force has lost their jobs in the last two weeks, they are not funded for that. And so, this is where the federal government is bringing these stimulus packages in and helping to fund all of the claims that are happening. But I just wanna be clear. Your employer has been and will continue to be contributing into the federal unemployment program at that rate of $420 a year, 6% of your first $7,000 of earnings.
The second place, your employer also contributes towards your state’s unemployment insurance fund. And this is calculated… I’m gonna go off of the State of Texas here. I have a lot of friends and people I’m close to in the State of Texas that have been hit very hard, that I work with very closely, that have had to be let go from our business. And I have a lot of you out there in mind as I’m recording this. And so, my examples are gonna be based on the State of Texas, but know that from state to state, there are slight differences and nuances in the way the program is administered.
But in the State of Texas, specifically, your employer pays into the state unemployment tax fund at the rate of…or on the first $9,000 of your compensation a rate of 0.36% to 6.36%. And so, this means it ranges from, like, $32 a year up to about $570 a year. So, big range there. And generally speaking, those employers who tend to have higher unemployment claims have the higher percentage charge. Whereas, those who have very low unemployment claims are much lower on the scale. So, employers are generally rated by the state fund, and those who are causing the least amount of claims generally have the lower rate.
Now, all of these taxes go into a fund at the federal and then at your state level. The state retains their funds, and then the government funds act as a backstop to each state. And each state administers their own program. For example, they give ratings to employers and charge, and are in charge of collecting their state unemployment funds. And then they set up their program in a way that they feel is gonna best benefit the constituents in their state. Again, and for the purposes of this podcast, I’m just gonna focus my examples from the State of Texas’ program.
So, this is how it funds. You have the state and the federal. The state takes the lead. The federal has a backstop. And these dollars are there in an insurance type program to help those who, at no fault of their own, have lost their employment. So, let’s jump into first thing first here before I go any further.
There is absolutely no shame in losing your job, especially when it’s caused by something that’s completely out of everybody’s control. There are a lot of employers that are having to do mass layoffs to try to keep their businesses alive while they go through shutdowns or sheltering places that are happening throughout the country. Some businesses are actually gonna end up closing entirely. I just wanna encourage as we go through this, do not feel any shame that because…number one, I don’t intend it. This is intended to try to help you. And number two, I wanna encourage you to hold your head high. There are financial resources in place, and the government is stepping in to help make sure those resources are available to help you through this difficult time, and help everyone else who has these type of financial struggles because of loss of work.
Now, everyone’s doing their best to get through the tough financial time, not to mention all of the other, you know, challenges that are going on right now. There’s health challenges, and emotional challenges, and anxiety, and fear, and all of that. What I can tell you is, employers generally didn’t wanna let their people go. And employees generally didn’t wanna be let go. Well, this unemployment insurance program is designed exactly for this type of situation.
So, let’s talk here for just a second about how you qualify for unemployment benefits. This is how it works. First, you must be unemployed through no fault of your own, as defined by your state law. So, a layoff, as I’ve said, definitely qualifies. Second, you must be available to work. And I’ll give you a couple examples here. You need to be putting forth some effort to try to find new employment. If your prior employer has business picked back up and they’re ready to hire you back, you generally have to accept those offers. You can’t sit back and say, “No, I’m just gonna sit back and collect unemployment claims. So, there is some responsibility on your end to be available for work, looking for it, as well as accepting opportunities when they come up. And then the third component of qualifying is, your past earnings have to meet minimum thresholds. And there are a couple of hurdles to jump over here.
The first one is, you have to have worked… Generally speaking, you have to have worked for about a year. The system will look back quarter by quarter at your last five quarters and make sure that you’ve got earnings in four of those five quarters. And I’ll go through… There’s a way that they test against that. But generally speaking, if you had a job and you only had it…it was your first job ever, you didn’t have any income before, and you were employed for 30 day, and then your employer laid you off, most likely, you’re not gonna be eligible for the benefit. Now, there may be some things changing or there may be some new benefits as the government, federal and state, are stepping in and changing some programs and enriching benefit to try to keep the economy going to stimulate things as well as gonna support and help people make their core bills. But in a normal environment, you’ve gotta have income that shows up for the last year. And that establishes something called a base period.
Then what your employer does is they take a look at…or I’m sorry. Then what the unemployment office will do — in Texas, it’s called the Texas Workforce Commissioner, TWC — they will look back at those four to five quarters of earnings, and they will pick the quarter that has the most earnings in it. And they will use that quarter to calculate your benefit. And I wanna go ahead and walk you through how all that calculates, and how all that works.
So, your… If we’re talking about looking at these quarters…and let’s say that during…or your highest paid quarter in the last year was $8,000 in that quarter. So, that would mean, making generally, you know, somewhere around $36,000 a year. And again, just using this as an example, what would happen here is you would take and divide the $8,000 by 25, and the result of that would be $320. And that would be the amount of the weekly benefit that you would receive, or $320 times, you know, 4, that would be roughly $1,200 to $1,300 a month of benefit that you would receive.
Now, we then compare it to what the maximum weekly benefit is. And in the State of Texas, it’s $521. So, in this case, you’d be lower than the $521. So, you’d take the $320 that’s there and available. I will mention right here and stop and say, if you are earning $15,000 or more in a quarter, that’s the cap…or I’m sorry. Not $15,000 a quarter. If you’re earning $13,000 a quarter, that’s where you would cap at that $520. So, if you have any more earnings than that $13,000 a quarter, that works out to about $52,000 a year in income. If you’re over that amount, you just know you’re gonna hit that cap of $521 and not be any higher.
There’s one other test before, you know… So, if you have that $8,000 of income and $320 of weekly benefit, there’s one more test that has to happen. And that is they look at your total base earnings. And they wanna make sure that you had earnings that are somewhat similar in other quarters to your highest quarter. And we mentioned, you know, in this example, I’m saying, your highest quarter was $8,000. Basically, they wanna see that across all your other quarters, that you had at least 50% of your highest paid quarter paid out in the other quarter. So, in this example, that would mean, as long as in the other quarters that they’re looking at, you had 50% of your $8,000 or $4,000 paid in these other quarters, then you would be eligible for the benefit.
So, in the case of $8,000, if they take a look and they see that you’ve received at least a total of $15,000 over your four quarters that are being measured, so, that’s $8,000 and the 50%, that gets you to about $15,000. As long as you’re there, then you are good. In fact, you’re golden. And you don’t…and you fully qualify. I’m sorry. That number’s actually wrong. It’s not 8,000. It’s $12,000. As long as your total earnings for the quarter are $12,000, then you qualify. That is the whole thing where you actually…it has to be greater than 37 and a half times. But, again, all they’re getting at is, as long as your total earnings are at least 50% higher than the one quarter they’re using, then you’re good to go on that weekly benefit. If it’s not there, then you don’t actually qualify for any benefit.
Now, I wanna be really clear. Unemployment benefits are not intended to completely replace your income. It’s designed to try to be somewhere around 40% to 50% of what your highest quarters’ wages were. And if you calculate out, you know, $8,000 a quarter, if you go to that $320 weekly benefit, that works out really close to about 50% of what your compensation was prior to being laid off or let go or, you know, thing out of your control cause you to no longer be employed.
Benefits also are designed to last for up to 26 weeks. As long as you keep up with your weekly and bi-weekly reporting requirements and there are requirements we’ll talk about in a second, but you have to make sure that you keep yourself available for work. And it can go for as long as 26 weeks.
Now, a couple of changes. The CARES Act, that was just passed within the last week, does a couple of things. The first one is, it adds $600 a week to everybody’s unemployment insurance. And so far, there’s been no guidances to how that works or exactly when it’s all gonna kick in and get started, but that would mean somebody who’s getting their $320 weekly benefit will now get $920 a week. That’s pretty amazing, federal government stepping in and doing that. The other thing that they’re doing is they are expanding from a duration of 26 weeks up to as many as 39 weeks. Now, remember, it doesn’t mean you get to sit home and just collect those checks. You have to be actively engaged and looking for employment, and accepting employment offers when they’re presented to you.
One other thing I wanna mention as well just from a tax perspective: generally speaking, income that comes from an unemployment program at the state level is federally taxable income. So, if you are, let’s say, making between the $600 and the $320…say, you’re making $1,000 a week and that happens for 26 weeks, that would mean you’d have $26,000 of income through the program. And generally, that is going to be taxable, something that you have to claim on your tax return. And when you sign up for insurance, you can elect to have 10%. Sometimes you can set a different amount aside, but they’ll actually withhold that from your payment, the taxes, and remit that in your behalf, so that you’re not having to save your taxes and pay them all in one lump sum at the end of the year or doing quarterly estimated payments. But just wanna be really clear that, as you’re thinking about how you’re doing this, you’ve got to account for taxes when you are determining how much cash you’re actually gonna be…or is gonna be left in your benefit after you take the taxes out.
Now, one other place to just touch on, if you were working full-time and you got switched to part-time as a result of this COVID-19 or something outside of your control and your employer’s trying to reduce their employment cost while they’re working through losing revenue and their business declining as a result of what’s happening, if you’re going from full-time to part-time, or if your hours are being cut or wage has just been reduced. You know, I hear some employees or some companies are saying, “Hey, everybody needs to take a 20% wage reduction or a 50% wage reduction.” If you have those types of reductions, you most likely can also qualify for unemployment insurance and would be considered a partial benefit.
And so, the way that this generally works…and I don’t have as much experience here. So, I don’t have all the answers, but I’d be happy to look it up if you guys wanna send me any questions. Oh, and by the way, send me any questions — email@example.com. I’d be happy to do as many more episodes on unemployment benefits as possible. There’s 10 million people in America trying to figure it out, and there’s gonna be more. So, I’m happy to try to get as much information to everybody as possible.
So, the way that this works is, the amount that you were earning before your income went down, so whether it was full to part-time or reduction in hours or just overall wage reduction, they take that amount, and then they take what your new earnings amount is. And then the difference becomes how they calculate the benefit for you. And some states actually will put a 25% bonus on top of it because they want to encourage people to go and get, even take a part-time job. If I’m completely laid off and I have a part-time job opportunity, I can go take that job opportunity and my benefit, I won’t lose all my benefit. I’ll keep, you know, 25% of what I was due at full-time to the conversion to part-time. And it means you could end up with more money by not just sitting home. But if you go take that part-time job between what you get from the job and what your unemployment benefit is.
And so, really important to understand that there’s usually a little bit of a bonus or a little bit of a kicker there. And you can benefit if you’re still at your same employer and it can start to fill in the gap. And again…and then a percentage of, you know, calculating with the variances, most likely, you’ll also be able to receive some of that $600 a week that the federal government is making available through the stimulus packages that have been passed and approved. Don’t know all the details on that. In fact, I think some of them are even still getting worked out as we speak and as you’re listening to this podcast.
You remember, you have to be available for and actively seeking full-time work to qualify for this partial benefit just as the full benefit. Nothing changes there. If your employer calls you and invites you back, you have to look at that and take that. And from a compliance perspective, you have to make sure that you’re not trying to take advantage of the system or play the system. Once you apply for and start receiving benefits, you have to check in regularly. You have to report earnings that you’ve had, you’re available for work, job search efforts. And you have to be truthful here. Trust me. The penalties for not complying or trying to game this system, might take them a while to find you, but once they find you, it’s not worth it. There are a lot of bad things that will happen as a result of trying to game the system. The government does not like people who use any level of fraud or theft or deceit in gaining these benefits when they really should be going to someone else who deserves them.
So, there it is. That’s the overview of the unemployment insurance program and its associated benefits. I hope that this has been helpful. I wanted to just give a really nice rounded out education to try to help as many of you as possible to understand what it is and how it works. Please feel free to send me any questions you have. Happy to do more podcast episodes on the details of, you know, how to apply and the taxation and anything else that you wanna talk about.
My heart goes out to all of you who have lost your jobs or who are struggling at this time. I hope this information is helpful. I invite you to keep your head as best as you can. I think this country is gonna figure out how to come back from this. It’s gonna be tough, and there’s economic difficulties ahead, for sure, and turmoil. But I think we’re gonna come back from it. Human innovation, creativity, and leadership will continue to create new opportunities, and help to form what I’m calling the post-COVID-19 economy. And it will not leave you behind.
A big thank you, again, as I mentioned in my last episode, to all those who are working diligently to keep us safe during this time, especially first responders, and healthcare and dental care providers, who are putting themselves in harm’s way each day to treat patients, and to serve all those in need during this difficult time. Many, many thanks to you for joining today. This is a wrap for episode 54. Happy day.