How Is Unemployment Calculated?

Each state has its own rules about unemployment. These rules control how unemployment benefits are calculated. They also determine what effect working part-time or going to school can have on your unemployment eligibility. Unfortunately, there’s no one-size-fits-all method of determining the unemployment you can receive. 

If you want to figure out your unemployment eligibility, the best thing to do is check with your state’s unemployment agency. The agency can also help you calculate the amount of benefits you’re entitled to receive. Here are some general guidelines to give you a rough idea of what to expect.

Factors That Go Into Unemployment Calculations 

Government-based unemployment insurance (UI) is a joint state-federal program. It’s designed to provide a financial safety net to those who have lost their jobs. Eligibility requirements differ by state, but generally you must meet the following three requirements to qualify for unemployment:

• You were fired from your job through no fault of your own;

• You’re looking for new employment; and

• You earned a minimum amount of money or worked a minimum amount of time before losing your job. 

Workers who get fired for cause or voluntarily quit aren’t eligible for unemployment. Getting fired for cause means an employee’s misconduct led them to get fired. Quitting may also prevent someone from getting unemployment compensation. One exception is if the person had no reasonable choice but to quit. For instance, an employee who quits because they’re being sexually harassed.

States almost always require recipients of unemployment benefits to look for a new job. Recipients will often have to provide information to prove their job search efforts. This may include providing contact information for places they’ve applied to work.

Each state will have its own requirements and formulas around minimum earnings or time worked. But the basic idea is that if you worked at a job for at least 12 months, there’s a good chance that you’ll meet this eligibility requirement.

An Overview Of Calculating Unemployment Benefits

The single biggest factor that determines how much unemployment you’ll receive is what you were making in your previous job. An unemployment agency will use your prior earnings to calculate your “base period.”

Some states will use one or more calendar quarters as the base period, while other states will look at the previous year to create a base year. Using that base period, a state’s unemployment office will do a few calculations to determine your weekly benefit amount. This weekly benefit amount is what you’ll receive each week. There are limits on what benefits you can receive. There are also other variables that could adjust it up or down.

Most unemployment insurance recipients will receive a benefit amount that’s about half of what they earned at their previous job. In early 2020, the average weekly UI benefit in the United States was $387. ^[1]

Other Variables That Affect Your Unemployment Compensation

Your unemployment benefits can go up or down based on other factors that don’t relate to your total wages. These variables will mainly affect how much money you receive, but they can also affect how long you can receive weekly unemployment payments. Some of these variables include:

• The state’s maximum weekly benefit limit.

• The number of dependents you have, if any. Some states will provide a small increase in weekly benefits for each dependent you have. These amounts are modest. You’ll usually receive about $25 per week for each dependent.

• The way you handle your income tax withholding. You may choose to have a certain percentage of your weekly benefits withheld for tax purposes.

• If you work part-time. Every state has its own rules governing unemployment for individuals with part-time work. Some states will let you work part-time while still receiving unemployment. Other states will deduct a certain amount of money from your weekly benefits based on how much money you earn from your job. Keep in mind that in some states, working part-time could result in an unreasonable loss in unemployment benefits. In other words, these states have unemployment systems where earning $1 by working will result in a $2 (or more) loss in unemployment benefits.

• If you’re in school. If you choose to attend classes full time, most states will no longer consider you unemployed. A few states will have exceptions to this rule. For example, Washington State’s Commission Approved Training allows students to receive their full benefits if they attend an approved, full-time training program.

How The Coronavirus Pandemic Changed Unemployment Benefits 

The coronavirus pandemic led to an unprecedented level of unemployment across the United States. In response, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This and other coronavirus relief bills increased unemployment benefits in several ways.

First, the CARES Act expanded unemployment eligibility to more categories of workers. Before the pandemic, independent contractors, freelancers, and gig workers weren’t eligible to receive benefits. The CARES Act created the Pandemic Unemployment Assistance program, which provided unemployment payments to these previously excluded groups of workers. It also provided benefits to workers who lost their jobs because of the coronavirus.

Second, weekly unemployment payments went up for eligible individuals by $600. This was on top of whatever they were receiving through their state’s unemployment insurance program. The time in which an individual could receive this supplemental benefit got extended on multiple occasions—this program ended on September 6, 2021. 

There are two things to note about these supplemental payments. First, the most recent extension lowered the supplemental payments to $300 per week. Second, about half of states intend to end these supplemental benefits before the September 6, 2021 deadline.

Third, the length of time a person could get unemployment got extended. Before the coronavirus, most states offered unemployment benefits for a maximum of 26 weeks. The CARES Act allowed states to add an additional 13 weeks of eligibility. And later coronavirus relief bills gave further extensions—this program ended on September 6, 2021. 

Sample Calculations 

The following section consists of two examples that show how a state might calculate unemployment insurance benefits for a particular worker. Remember, these are just examples. Your situation may be different because of how your state calculates benefits.

Example 1: Full-Time Worker With No Additional Income 

John has one dependent child and lives in Massachusetts. When he got laid off on March 31, 2021, he was earning a salary of $45,000 a year. During the two years he worked for his employer, John always received $45,000 per year. 

In determining a claimant’s base period, Massachusetts looks at the last four calendar quarters. This means the Massachusetts Department of Unemployment Assistance (DUA) will look at John’s wage information from the following four periods:

• January 1, 2021, to March 31, 2021

• October 1, 2020, to December 31, 2020

• July 1, 2020, to September 30, 2020

• April 1, 2020, to June 30, 2020

The DUA will look at John’s two highest paying quarters and add up John’s gross earnings for that time period. They’ll then divide that number by 26 to calculate his weekly benefit amount (WBA).

Because John earned a steady $45,000 per year, he made $11,250 per quarter. Added together, his two highest quarters equal $22,500. Divide that by 26 and we get $865.38. This would be John’s WBA, but since it exceeds Massachusetts’ maximum weekly payment of $855, it will be adjusted down to that. But, John will also get $25 per week for his dependent, so he’ll receive $880 per week in unemployment benefits. He’s eligible to receive these payments for up to 12 months.

Example 2: Part-Time Worker Earning $400 A Week Unemployment Benefit 

Jane lives in Illinois. She was working two part-time jobs but got laid off from one on March 31, 2021. She was earning $600 per week from that job. She still has her second part-time position, which pays an average weekly wage of $400. These earnings were consistent for the entire time she worked at these two jobs.

The Illinois Department of Employment Security also determines a person’s base period by looking at the four most recent calendar quarters and factoring in the two highest ones. This value is then multiplied by 47% and divided by 26.

Applying the Illinois unemployment calculation formula, we see that if Jane files an unemployment claim, her WBA will be $470. That’s the $26,000 that Jane made in two quarters, multiplied by 47%, which is $12,220. Finally, that’s divided by 26 to get $470.

Illinois’ WBA maximum is $471 per week, so there’s no reduction to her benefits. However, Jane is still earning $400 per week at her other part-time job.

Illinois allows unemployment insurance recipients to work. Specifically, they can earn the equivalent of 50% of their weekly unemployment benefits without penalty. Because Jane receives $470 each week, she can earn up to $235 per week without it having any effect on her $470 per week benefit. Unfortunately for Jane, she makes $400 per week. As a result, Illinois will reduce her $470 weekly benefit payment.

Let’s Summarize... 

There are several factors to consider when determining unemployment. These factors affect your eligibility as well as how much unemployment you can receive. When applying for unemployment, be sure to carefully review your state’s unemployment rules. 

If necessary, contact your state’s unemployment office to understand how your benefit is calculated and how long you may receive it. It’s also important to fully understand the conditions you must comply with to continue receiving your benefits. If you need extra help with unemployment, contact your local state politicians. Part of their job is helping constituents access government benefits, like unemployment insurance.