How Is Unemployment Calculated?
- Unemployment insurance weekly benefits usually depend on the wages you earned when employed, often your highest quarter of earnings. But each state has its own formula to calculate unemployment benefits, so read our unemployment guide to learn more about how unemployment is calculated in your area.
It hardly needs to be said that losing a job is one of the most stressful events anyone can go through. Fortunately, some – but not all – workers who have lost a job may qualify for unemployment insurance compensation.
Unemployment insurance pays benefits to those who have lost a job for certain reasons, like a layoff or corporate restructuring. These insurance programs are administered by both the federal and state governments. The federal government sets general rules and each state then creates its own guidelines for eligibility, time limits, payment amounts and more.
Who Is Eligible for Unemployment Benefits?
Unemployment insurance is designed to be a temporary benefit to help those out of work stay afloat while they look for a new job. It is not allowed to anyone who has stopped looking for a job or is unable to work, or for those who have not had a regular job before applying.
It is also meant for those who lost a job through no fault of their own. Someone who quits for no reason or is fired for misconduct or other serious offenses is not eligible for unemployment.
To prove eligibility, most states require the following:
- You are available to work and are actively seeking work
- You are out of work for reasons not of your choice or conduct
- You have worked a minimum number of hours for a minimum amount of wages before becoming unemployed
- You must follow the rules for filing established in your state
How Much Are Unemployment Benefits?
Unemployment benefits are intended to replace only some of the wages lost, not the entire income. The amount each recipient can claim depends on previous employment history and his or her state’s calculations. Each state has a different method of calculating these benefits. And each state has minimum and maximum benefit amounts.
It is difficult to know how much you will receive or for how long you can collect unemployment benefits. Every state calculates the benefits differently, depending on how much you made before losing your job and on the state’s maximum amount of unemployment benefits it will pay to workers. For example, some states will pay half of the previous earnings up to a certain maximum amount. Some will pay for up to 26 weeks but no longer; others pay for fewer weeks.
According to FileUnemployment.org, about half of the states calculate benefits according to the “highest quarter method” – the calendar quarter (13 weeks) in which your earnings were highest. Other states calculate your earnings throughout a different base period of time.
For example, if a state uses the applicant's highest paid quarter and replaces half of the lost wages, it takes the total earnings in that quarter and multiplies it by 1/26 to calculate the weekly benefit amount.
Some states offer online calculators to generate a rough estimate.
There are typically two types of unemployment calculators, which help quantify:
- How much money you are entitled to
- How many weeks your benefits will last
Go to your state’s unemployment insurance website to look for an unemployment calculator tool or for more information.
How Do You Receive Unemployment Benefits?
Once you are approved for unemployment coverage, you file your claim weekly online, by email or by phone.
Benefits may be mailed to you as a check. Most often, though, they come in the form of a debit card, with your weekly benefits deposited directly into your account.
Payment and Tax Requirements
Most states pay benefits every week or two. The first check may be delayed for processing. Your state’s unemployment website should have an FAQ page with details.
Unemployment benefits are taxable income, so any unemployment benefits must be included in both federal and state tax returns. Some states automatically withhold a portion of the benefits – usually 10% – for taxes. Other states leave it up to the beneficiary. Most experts recommend setting up payments to have taxes withheld from each check, so that that you won’t owe taxes when you file your return.
Unemployment compensation is reported on tax Form 1099-G, which must be filed with your tax return.