When it was enacted in March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act significantly expanded unemployment benefits by adding on an additional $600 per week to what states traditionally pay the unemployed, which is generally half of a worker’s prior take-home pay. Unfortunately, unless the additional benefits are extended by Congress soon, they are set to expire at the end of July. Studies have shown that many Americans are not aware that unemployment checks would be reduced to traditional payouts starting August 1st.
As it may take longer than normal to find a job in this economy, unemployed Americans should plan ahead in case those additional benefits expire before they are able to return to work. Here are a few do’s and don’ts on how to prepare:
DON’T
Splurge: In many cases, it has taken so long to process initial unemployment checks because of outdated, backlogged systems that the first check may contain a month’s worth of benefits or more. Even if you don’t need all of the money right now, remember to save as much of it as you can, knowing you will have bills in the future it could help pay for.
Forget taxes: Many receiving unemployment benefits mistakenly believe they are tax free. Though Washington has no state income tax, unemployment benefits are still taxed at the federal level. The Washington State unemployment office can withhold taxes for you, or you can save the money yourself.
Touch your retirement plan: The CARES Act allows individuals to withdraw up to $100,000 or 100% of their vested balance, but it must be paid back in three years. However, borrowing against your retirement is rarely a good idea and should always be considered a worst case scenario option.
DO
Budget: Get to know and understand your monthly expenses and income now so that you can plan ahead for how to cope with a $600-per-week loss in income in August. That way, you’ll know how much and where to cut expenses to save money without driving yourself into debt.
Save: If you have not needed all of the additional income to keep yourself afloat, be sure to take the last few weeks of higher unemployment benefits to beef up your emergency fund. Saving a few extra dollars now can potentially help you cover any disparity between your income and living expenses in future months.
Ask for relief: Many utility companies, banks, landlords, and other creditors are allowing for delayed or partial payments in light of COVID-19. Reach out and see if anyone you owe money to has provisions like this in place. This flexibility on debt repayment may allow you to have more cash in the short-term.
Click here for more information about collecting unemployment in Washington, or click here for a past blog article where we discussed how to reduce spending and save money. If you have any questions, please do not hesitate to contact us. Take care, and stay safe.