Set your priorities and put your needs before debts when living on unemployment benefits.
How Do Unemployment Benefits Work?
The unemployment insurance system is supervised by the U.S. Department of Labor, but each state runs its own program and sets its own rules, providing most of the funding. A regular unemployment program in a particular state may replace about half of your average weekly wages for up to 26 weeks during normal times, but benefits can vary widely.
Staying on Top of Initial Tax Payments
Your unemployment benefits are taxable income for federal tax purposes, although this rule was waived for unemployment benefits up to $10,200 for those with adjusted gross incomes (AGIs) of no more than $150,000. You will need to report any unemployment compensation when filing your tax return in the future. You can choose to have 10% of your benefits withheld for taxes by filling out the Internal Revenue Service (IRS) withholding form (W-4V), but this is optional. It will not happen unless you request it.
Adjusting Spending
Consider the expenses you need to survive when creating your unemployment budget. Tain suggests ranking your expenses from most important to least. “Food, mortgage payments, rent, utilities, and health insurance are essential,” she said. “If you’re paying off credit card debt and facing unemployment, shift your focus to the most important bills and pay the minimum on credit cards if necessary.”
Prioritizing Rent
It’s crucial to prioritize rent in your unemployment budget. The national eviction ban was extended by the Centers for Disease Control and Prevention (CDC) until September 30, 2021, but the U.S. Supreme Court ruled on August 26, 2021, to overturn this extension, ending the ban. This decision was made by the court because the CDC had exceeded its authority.
Requesting Hardship Agreements
Request a hardship agreement from your bank or credit union if your unemployment benefits don’t cover all your bills. Many banks may not yet announce COVID-19 hardship relief programs, but they may allow you to defer or modify payments on a case-by-case basis. You may be able to pause or reduce your payments for up to 360 days if you are a homeowner affected by COVID-19 and the mortgage is legally insured or guaranteed.
Building Your Emergency Fund
Job loss is one of the primary reasons for having an emergency fund. You may want to consider putting money into this fund before paying more than the minimum on your debts if you have any money left after taking care of essentials. This will provide you with a safety net in case your unemployment benefits run out before you find your next job.
Focusing on High-Interest Debt
You can turn to high-interest debt after you have saved three to six months of expenses. Prioritize the high-interest debts. For most people, this will be credit card debt.
Conclusion
Unemployment benefits are typically meager. Relief measures have made benefits more generous than usual, at least for a time, but the expanded benefits don’t extend far enough for some people. It’s essential to seek hardship agreements and review your spending if your benefits aren’t stretching far enough or long enough to save you from the crisis.
Source: https://www.thebalancemoney.com/smartest-way-to-use-unemployment-benefits-5114406
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