Unemployment insurance can be beneficial for some. However, there are disadvantages to the system as well. When considering unemployment insurance, it is smart to understand not only the positives but the negatives associated with the system as well.
What are the disadvantages?
While unemployment can be beneficial, and in many cases is the best option for unemployed workers, the system does bring with it some disadvantages to consider. Some of the disadvantages include:
- Claim Limits: Unemployment insurance is governed by federal regulations, but each state handles their system on their own. However, both federal regulations and individual state codes regulate how much money a claimant can receive from unemployment insurance. These regulations create a system that gives lower amounts to those who are working part-time or are self-employed while receiving unemployment benefits. Additionally, these regulations can affect your eligibility based on how long you were at your previous job and how much you earned.
- Taxable Income: Money coming from unemployment insurance is taxable income, on both the federal level and in some states. This means that the amount you receive will be less than the gross benefit amount. Additionally, you will need to report the income of your benefits to the IRS during tax season and pay any difference there may be from incorrect amounts being held back at the time of dissemination.
- Delayed Payments: Because payments from unemployment insurance have to go through a legal and political process, the system itself can prove to be slow. For example, many states require at least a full week of unemployment before they will begin processing requests for checks to be sent to you. Plus, if you are able to find a new job but will not receive your first paycheck for multiple weeks, your unemployment amount will still be reduced.
- Pressure for Employment: Unemployment insurance exists to help workers as they attempt to find new jobs. Because of this, receiving unemployment benefits means that your unemployment office will require a lot of oversight into your job search. After a state-specific period of time, your benefit amount can be reduced if you refuse job positions, even if they pay much lower than your old job. Some unemployment offices will even require you to accept any job offer.
When should I avoid filing for unemployment insurance?
When you are first laid off or otherwise removed from a job, unemployment may be the first thing you think of. However, you should first carefully examine your situation to determine if unemployment insurance is the best option for you. For instance, if the situation surrounding your loss of work is ambiguous then you may not be eligible for benefits in the first place. Some states may allow you to receive benefits while they investigate your claim, but if you are found to not be eligible then you will be required to pay back any benefits you have received.
Additionally, if you have strong job opportunities already lined up, it may be better to have no income for a few days than to apply for unemployment benefits. Unemployment benefits are taxable income and, if you quickly find a new job, the money will not do much good anyway. So, if other jobs are waiting for you immediately, do not apply for benefits.
