Downsides of collecting unemployment (and giving it away)?

January 19, 2006 9:49 AM

What are the downsides of collecting unemployment (and giving the money to a friend)? Would it affect, for example, applying for a mortgage in the next two or three years? (I live in NYC).

I usually work freelance, but happen to have been in a staff position for the last year or so. I may take some time off once this job ends next month (though if something enticing comes up I'd do it, making this a moot point).

While I don't really feel like I deserve to collect unemployment benefits because I'm pretty certain to be able to find work quickly if I want to, my friend and soon-to-be new apartment mate has been unemployed for the last few months (and is having trouble finding a job), and, due to a technicality, was unable to collect unemployment benefits herself. I was thinking of collecting unemployment and giving the money to her.

Is there any reason not to?

posted by nobody to work & money (24 comments total)

Um, because it's illegal and unethical? Gaming the unemployment insurance system weakens it for everybody. It's there to get you by if there's an emergency. It's nice of you to want to help your friend, but help her on your own dime.
posted by pazazygeek at 9:56 AM on January 19, 2006

If you're about-to-be roommate is not making enough money, might you need the benefits yourself to cover the entire rent?
posted by occhiblu at 10:04 AM on January 19, 2006

What pazazygeek said. Unemployment is supposed to help people fired/let go from one job pay the rent and put food on the table until they can get another job (which is why it's usually required that those receiving unemployment be able to demonstrate that they are actively looking for work).

If it's such a simple matter for you to get another job, why don't you just take a new job and give some chunk of your pay to your friend?
posted by Godbert at 10:10 AM on January 19, 2006

It sounds to me like "nobody" is legally entitled to receive unemployment because his/her current employment will be coming to end through no fault of his/her own.

The fact that you will be unemployed for the period could definitely impact you ability to get credit in the near future but I don't know whether claiming unemployment benefits would have any additional impact.
posted by Carbolic at 10:10 AM on January 19, 2006

But yeah, there is the fact you are supposed to be pursuing employment while collecting the benefits.
posted by Carbolic at 10:12 AM on January 19, 2006

Illegal? Unethical? Not. That you don't feel deserving does not make you ineligible. Once you collect money that you are *legally * entitled to (and in this case you are, right?), it's yours. You can spend it however you want, or give it to whomever you want. The Unemployment system determines whether you're eligible, and to how much. They don't say how you have to use the money.

Having been unemployed will probably not affect your eligibility for a mortgage, if you have a decent income when you apply, a good credit history, and some assets.
posted by Kirth Gerson at 10:13 AM on January 19, 2006

If you are about to be unemployed too, you will need the money for yourself.

Also, it's not a good idea to be roommates with someone who has been unemployed for a few months and who has no prospects for income.
posted by elisabeth r at 10:13 AM on January 19, 2006

Remember that you'll have to pay taxes on the full amount of benefits you receive come next April.
posted by coffee and minarets at 10:13 AM on January 19, 2006

Illegal? Unethical? Not. That you don't feel deserving does not make you ineligible.

I can't speak for New York, but in Canada, working freelance makes you ineligible for benefits regardless of how much freelance work you take; that is, once you are considered self-employed, you can no longer collect.
posted by solid-one-love at 10:16 AM on January 19, 2006

Don't try collecting benefits and working at the same time either. The state Department of Labor conducts random audits, and when you are caught you will have to pay all these money back, plus penalties and possible criminal prosecution.
posted by reverendX at 10:24 AM on January 19, 2006

Do you know for certain your roommate would take money from you? I'd rather work as a garbage lady than take a handout from my roommate.
posted by ThePinkSuperhero at 10:24 AM on January 19, 2006 [1 favorite has favorites]

It's been about two years since I got unemployment, but I recall that they ask whether or not you are receiving any income on the questionairre they send you with each check. It's my understanding that if you are receiving income for freelance work and simultaneously receiving unemployment then yes, that would be illegal, and if you report that income, then my guess is that it should be trivial to catch you.

This is in CA. I know the rules in NYC are somewhat different. uh, and heck, i just checked them for you. Here's the answer from the labor dept:

A: If you work less than four days and earn $405 or less in a week, you may receive partial benefits. Each day or partial day of work will reduce your benefit rate by one-quarter. If you are unable to work, your benefits are determined on the same basis. Receiving partial benefits extends the length of time you may collect benefits until you reach the maximum or your benefit year ends, whichever comes first. If you earn over $405 in any week, regardless of the number of days worked, no benefits can be paid for that week.

(from "After You've Applied for UI FAQ"

So looks like if you earn less than $1600 a month through your freelance work you can still get some benefits.

Is it ethical to give the money to a friend? Well, as long as you're not doing anything illegal to get it (ie, misreporting how much your income is), i'd say, sure. I'd have to agree with Kirth Gerson's answer above.
posted by fishfucker at 10:29 AM on January 19, 2006

IANAL, but I don't think what nobody wants to do is illegal. (If we were talking about welfare, then it would be.)

But why think of it as if you're applying for benefits on her behalf? That's what's making this question strange. Sure, file for unemployment just in case it takes longer than you expect to get work. Help your friend as much as you both feel comfortable with. There's no reason the two things have to be connected at all.

Also, you can't collect unemployment (legally or ethically) if you're not actively looking for work, and you can be disqualified if you turn down any reasonable offer. In the U.S. I'm pretty sure you can temp or freelance while collecting benefits, but you have to report all income and your benefits will be reduced. And yes, this is taxable income, and the IRS will expect to see it reported on your return.
posted by expialidocious at 10:30 AM on January 19, 2006

Godbert: If it's such a simple matter for you to get another job, why don't you just take a new job and give some chunk of your pay to your friend?

Honestly, she would never accept that (and she has enough savings to pay for essentials for a while longer). I think she would accept unemployment money, however, because she felt like it was unfairly denied to her (which, on preview, answers TPS's question).

(I'd rather not go further into her situation because despite the internet pseudo-anonymity it feels like a breach of trust.)

Carbolic: The fact that you will be unemployed for the period could definitely impact your ability to get credit in the near future but I don't know whether claiming unemployment benefits would have any additional impact.

In general, because I'm usually working freelance, there's no record of how many weeks or months I'm working vs. not working, just the tax forms at the end of the year (and the estimated tax forms, if I do them, which usually just divide the previous year's earnings into quarters, I think). So I think collecting unemployment would be the only official marker of said unemployment. Does that change anything?

(elisabeth r: Also, it's not a good idea to be roommates with someone who has been unemployed for a few months and who has no prospects for income.
I know. Thanks for the concern. I think this will work out.)

Kirth: Having been unemployed will probably not affect your eligibility for a mortgage, if you have a decent income when you apply, a good credit history, and some assets.

Is that true? What would have to be the lag time between the unemployed period and the mortgage application, assuming consistent freelance work in between?
posted by nobody at 10:30 AM on January 19, 2006

Unemployment insurance is not welfare, you are entitled to it if you meet the criteria and you have been paying into the system, period. Don't listen to any moralizers who don't even understand the nature of unemployment coverage. The suggestion that you not only have to qualify for it but should also have to need it is ignorant, insulting and wrong.

It is no more unethical to collect when you meet the criteria than it is to use the prescription drug coverage in your health insurance when you could have just paid full pharmacy price. It's a benefit of the insurance, which you pay for directly or indirectly. Unemployment insurance is no different. When you are working you are paying those premiums whether you like it or not. If other people want to be jackasses and not take advantage of what is their right, let them, but don't throw your own money away.

What you choose to do with that money that you are entitled to is up to you. You're perfectly within your rights to give it to a friend, stripper, homeless dude or Hillary's re-election campaign. The only constraint you need to work within is the limits on how long you can collect, which usually revolve around your continuing to look for work and finding a comparable replacement position. If you avoid getting replacement work for the purpose of continuing to collect (assuming it is work you are required to - often you are not obligated to take any position of lower compensation than the one that ended) then you are cheating.
posted by phearlez at 10:31 AM on January 19, 2006

(there's a bold on that *and* on the webpage, so looks like you'd have to keep your work hours down. I didn't look around for any information strictly related to self-employment -- that means that the above may not address your situation. just FYI. but it looks like a lot of info is contained on those labor pages).
posted by fishfucker at 10:31 AM on January 19, 2006

What would have to be the lag time between the unemployed period and the mortgage application, assuming consistent freelance work in between?

It depends. Sorry, I don't know what it depends on; you'd have to ask a mortgage underwriter.

I have been in exactly the situation you're thinking about. When I applied for the mortgage, I was contracting, my wife was working perm, we'd both changed jobs within a year, and had both been unemployed for some months within two years. We had a pile of equity in the house we were going to leave and had money in the bank. The mortgage was no problem. One of the supporting documents they wanted to see was previous tax returns.

If you aren't currently working, don't apply for a mortgage. they won't like you. If you have no savings and no property, it might give them pause. Basically, they want some assurance that you'll be able to make the payments.
posted by Kirth Gerson at 10:45 AM on January 19, 2006

I'd think where you would run into problems is the "actively looking for work" which is part of most unemployment setups. If you're taking a break, or even if you're freelancing and not looking for a permanent position, then you probably don't technically qualify.
posted by fidelity at 10:45 AM on January 19, 2006

I can't speak for New York, but in Canada, working freelance makes you ineligible for benefits regardless of how much freelance work you take; that is, once you are considered self-employed, you can no longer collect.

Actually, this is not necessarily true. If you explain that your freelance work is not your primary focus, that it does not prevent you from securing full-time work, that it is not a major part of your income and that you had the self-employment when you were employed and that it didn't affect your employment, HRDC often approves it. It helps if you explain that you can't predict when the work would arrive, if ever. Add that you aren't about to turn away paying work, even if the current economic climate makes it contract work, rather than typical employment. Emphasize that you want very much to secure a regular job. You simply tell them that (as the law dictates) you will deduct any earnings from HRDC. There's a space on the (print/online) EI slip to do this.
posted by acoutu at 10:46 AM on January 19, 2006

On postview, you've answered my question about why you're thinking like you'd be applying for benefits on her behalf.

You're still in a bit of a catch-22 though: you'll be tossed off unemployment if you're not actively seeking work, but as soon as you get freelance or permanent work, the cash she might feel comfortable accepting from you will decrease or disappear. It seems like almost any way other you could think of helping her out would be better.

As for the mortgage question - can you call a mortgage broker in your area? They'd probably know best.
posted by expialidocious at 10:52 AM on January 19, 2006

And what phearlez said about those who don't understand unemployment insurance. If you're not eligible, you won't get any money. If you cheat, you'll probably be caught and punished. If neither of those situations applies, then it's your money.

For employers, UI is a cost of doing business. If they didn't have to pay out for workers they lay off, they could pay the ones they keep more money. (Yes, I'm an idealist.) So think of it as an ongoing tax on your paycheck, to be paid back if you get laid off. In fact, that is very nearly exactly how UI benefits are calculated - if you earned a lot of money, you'll get the maximum benefit. If you earned minimum wage, not so much.
posted by Kirth Gerson at 10:55 AM on January 19, 2006

That you don't feel deserving does not make you ineligible... The Unemployment system determines whether you're eligible, and to how much. They don't say how you have to use the money.

True. I don't understand why you have a problem with the idea of collecting unemployment; that's what it's for. You don't have to be desperate, just unemployed. I've taken it every time I've had the chance. But if you're taking it, follow the rules and either don't work freelance or don't collect the unemployment while you're working.

If you aren't currently working, don't apply for a mortgage. they won't like you.

This is not true. I got a mortgage while I was out of work, and I know other people who have as well.
posted by languagehat at 11:08 AM on January 19, 2006

I got a mortgage while I was out of work, and I know other people who have as well.

Okay then, I was talking though my hat. I bet you and your friends had other sterling qualities that impressed the underwriters, though. That heiress you married, the yacht, you know, like that.
posted by Kirth Gerson at 11:44 AM on January 19, 2006

Just to add another voice - you've already paid for it - you pay for Unemployment in every paycheck you earn.

You will have to pay taxes on it, so watch out about giving it away.
posted by unixrat at 11:49 AM on January 19, 2006