Navigating the Unemployment Process – Part 1

If you’ve recently lost your job and are struggling to find a new one, you are not alone. The unemployment rate in the U.S. is at it’s highest in 16 years, and as more and more companies resort to cutting their labor force, it’s only going to get worse. I’m assuming you aren’t going to wait for Obama’s economic stimulus plan to kick in, but are instead hoping to claim Unemployment Compensation while you search for a new gig. If you’re new to the process, here is some basic information on the US unemployment plan to help you understand if it’s right for you, and if so, how it all works.

The Basics
The Federal Social Security Act of 1935 included language that placed federal pressure on state legislation to implement their own Unemployment Compensation programs. Funding for the administration of each state program comes from federal payroll taxes placed on all U.S. employers with one or more employees. Funding for the actual benefits paid to the unemployed are raised by state payroll taxes placed on employers and individuals alike. The United States Department of Labor regulates Unemployment Compensation standards across all states, although each state program has a slightly different administrative process. In 1987, the federal government ruled that unemployment compensation must be included in an individual’s federal gross income. This means that the government considers your unemployment checks taxable. You must decide whether or not you would like unemployment checks to be sent to you with or without those applicable taxes deducted from the total. If you chose to receive the entire amount before taxes, keep in mind that you will owe those taxes to the federal government when you file your tax return.

Are you Qualified?
If you have lost your job, or fear that you are in danger of losing your job, you should know how you can qualify for unemployment benefits. Federal regulations dictate that you only qualify for Unemployment Compensation if you have lost your job “through no fault of your own”. This typically means that your company laid you off or closed its doors, however all state Unemployment Compensation offices have a process through which you may apply for benefits and argue your case if you were fired or let go for reasons other than lack of payroll budget. In this case, your state unemployment agency will set up a time to interview you and your former employer to determine whether or not you qualify for benefits.

In Part 2, learn about how to apply for, and receive, Unemployment Compensation.