Unemployment Compensation
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Unemployment Compensation

By Mark Castro, CPA


What is unemployment compensation

Unemployment compensation is a benefit that provides temporary financial assistance to workers who have lost their jobs through no fault of their own. It is meant to provide a source of income until an individual can find new employment.

Unemployment compensation is paid by the State the individual worked in and an individual must meet their state’s eligibility requirements. States’ unemployment compensation benefits are funded by state and federal payroll taxes paid by employers.

 

Unemployment compensation payments

These are the actual unemployment benefits that are paid by the state to the unemployed individual. They are usually paid via direct deposit or a debit card.

Woman job hunting

How to file for unemployment compensation

An individual must file a claim with an unemployment insurance program in the state where they worked in order to receive unemployment benefits. It generally takes two to three weeks after an individual files their claim to receive their first benefit payment.

To find each State’s Unemployment Insurance Office, see the following:

Unemployment compensation biweekly claim

A biweekly unemployment compensation claim is a claim the individual must file every two weeks with their state’s unemployment insurance agency in which they report any earnings for each week that they are partially or completely unemployed. This claim must be filed by the individual in order to continue receiving unemployment benefits from the state.

Mixed earner unemployment compensation

The Mixed Earner Unemployment Compensation (MEUC) benefit was created by Congress to help individuals who earned money both through traditional W2 employment and also through self-employment income.

It allowed states the option to participate. For states that participated, the MEUC provided an additional $100 per week supplemental benefit on top of the standard federal supplement and their state’s weekly base benefit to eligible individuals. The individual must have received at least $5,000 of self-employment income in the most recent taxable year ending prior to the individual’s application for regular unemployment compensation.

This extra benefit was applicable for 11 weeks from December 27, 2020 to March 13, 2021.

Emergency unemployment compensation

This term refers to the additional unemployment benefits during 2020 (provided in CARES Act) to qualifying individuals who were otherwise able to work, except they are unemployed, partially unemployed, or unable to work due to COVID-19. The additional benefits were extended by the American Rescue Plan Act in March 2021. It provided additional benefits for eligible individuals from January 28, 2020 – September 6, 2021.

Unemployment Compensation Exclusion Tax

There has been no new federal legislation enacted that extended the unemployment compensation exclusion. The full amount of any unemployment compensation is taxable on the individual’s federal tax return.

The exclusion of up to $10,200 of unemployment compensation was applicable to Tax Year 2020 only.

Unemployment compensation exclusion worksheet

For federal income tax purposes, the unemployment compensation exclusion worksheet was the worksheet in the 2020 Form 1040 instructions that was used to calculate the $10,200 unemployment compensation exclusion.

This exclusion was only available for 2020. It was not available in 2021.

 

Homeless person

FAQ

Is unemployment compensation taxable?

For federal income tax purposes unemployment compensation is fully taxable and must be reported as income on Form 1040.

For more details, see the following pages on the IRS website:

What line of the 1040 is unemployment compensation reported on?

The full amount of unemployment compensation is reported on Form 1040, Schedule 1, line 7.

For Tax Year 2021, the full amount of unemployment compensation is taxable. The $10,200 exclusion was only applicable for Tax Year 2020.

How to find unemployment compensation status

Most states have an automated Unemployment Insurance website where unemployed workers can apply for benefits and they can also check the status of their claim.

Can you get unemployment after workers compensation?

Generally, the answer is no. Although, there are some instances that an individual may be able to claim unemployment benefits after they have collected workers compensation and they no longer are able to work at their former employer.

If the workers compensation agreement requires the individual to sign a resignation letter, they will not be eligible for unemployment compensation after the workers compensation claim is settled.

If an individual is unable to work due to the injury for which workers compensation is awarded, they also will not be able to file for unemployment because they are unable to work.

If the individual is declared as able to work, they may be able to claim unemployment depending on their individual circumstances.

Individuals will need to check with their state’s unemployment insurance agency to determine if they can claim unemployment compensation after their worker’s compensation claim is settled.

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