If you are out of work, you may have been able to collect unemployment benefits. A typical reduction in workforce which impacts you will let you qualify for this. However, a number of situations can be potential disqualifiers. Quitting without good cause (including getting married, moving, or going back to school) will disqualify you, as will getting fired.
Unemployment benefits vary state to state, with a typical benefit of 1/2 your prior pay often subject to a maximum based on the average salary within the state. You can expect to be paid beginning a week or two after filing, and continue to receive checks until you are working again or you’ve collected for 26 weeks. With unemployment numbers reaching nearly 10% recently, the 26 weeks was extended to as many as 99 weeks in the hardest hit states. As this is a state run benefit, you should contact your local unemployment office or look online to find out the rules that impact you in your given state of residence.
One important thing to be aware of – the money you receive is income, taxable to you as ordinary income. A provision in 2009 exempted the first $2400 in benefits from tax, but that provision has expired and isn’t likely to be renewed for 2010. A short period of income with no withholding may not put you that far behind, but be careful, a long period of unemployment and you may find an unpleasant surprise when April comes around. Not a bad idea to do a dry run of your taxes now, and sending in an estimated tax payment before Jan. 15, 2011, you can help avoid a penalty for under withholding.
Here are a few tips for how to benefit from this time out of work:
- If you had a 401(k) at your job, now is a good time to get the paperwork together and transfer it to an IRA. Your investing choices will be greater and your costs, lower.
- If you have some extra funds still available, consider converting some of your IRA to a Roth. Tax will be due on any pretax deposits along with any earnings, but it may pay to take advantage of your lower income this year and just convert enough to stay in your current tax bracket.
- Use your experience of living on a lower income to help you adjust your spending moving forward. You got by on less those few months you were out of work because you had to, right? Now, why not keep your budget reduced and use some of those full-sized pay checks to jump start your retirement savings and refuel your emergency account?
- Last, don’t stop networking. Whatever you did to find the new job can help keep you employed or make your next period of unemployment even shorter.
Click here for more tax tips about unemployment.