Collecting unemployment benefits + getting freelance lump sum payments?
April 26, 2013 7:14 PM   Subscribe

I am collecting weekly unemployment benefits and signed onto a short-term gig as an independent contractor where I am being paid in two lump sum payments. How can I report this accurately while still getting the maximum possible unemployment benefits?

I was laid off earlier this year so I’m collecting unemployment in MA and I get about $500 a week. I have accepted a consulting position that will last 10 weeks and pays about $9000. I am getting the money in two payments, once at the start and once on project’s due date. I had to fill out a W9 for the job and Google tells me that’s related to filing a 1099 as an independent contractor. I called the unemployment office and asked about reporting and he said whether my employer files a 1099 or a W2 would determine how it would affect my eligibility. My takeaway from what he explained was that W2s would mean I was an employee of the company and the unemployment office would see my earnings and have to close and reopen my claim with a new employment separation after the project ended. It seems like, and I may be wrong, but a 1099 is not something the unemployment office would see as I would not technically be an employee for the company and it would not affect my eligibility either way.

My question is:

I asked him how I should report it and he recommended I divide my total compensation by the number of weeks I will be working and report that each week. So, basically $900 per week. Is this really necessary? The payment is coming in lump sums and I am not a regular employee with a specific work schedule or other specific requirements. All they are paying for is the work being done and I will do it on my own schedule. And this project is 10 weeks based on the due date, but conceivably I could finish it in like 5 weeks. It just depends how quickly I worked and how much time I put into it. I was actually planning to take a break in the middle, so in that case, could I simply report for, say, 5 weeks instead of 10? I mean, as long as I report the full dollar amount I am being paid, haven’t I properly disclosed everything I need to? I would never lie about the amount of money I am being paid for this project -- the question is whether I can just report it all at once. He said the max possible I can earn per week and still get partial benefits is my maximum benefit amount (the $500) + 1/3 of it, so roughly $700 a week and then I cannot collect partial benefits. If I report the entire $9000 divided over 10 weeks, that exceeds $700 and means I won’t be able to collect for all those weeks and I would get $0 in unemployment. I obviously don’t want $0 and I am also wondering if that will negatively affect my eligibility status somehow.

To be clear, I do not want to break the law or do anything that could get me into trouble if I was audited. But, I also do not want to over-report anything more than necessary and give up unemployment compensation that I don’t need to. I mean, I’d obviously prefer to continue to collect partial unemployment while I do this job if there is a way to legally do so. I was unemployed in NY once and partial unemployment was based on days worked, so when I freelanced, I squeezed all my work assignments into a single day if possible so I could still collect unemployment for the other four days of the week. I want to do this consulting work and report to MA unemployment in a way that gives me the maximum benefit possible. I’m grateful for the freelance gig, but I am still very broke and living at home until I can find a steady way to live on my own again.
posted by anonymous to Law & Government (6 answers total) 2 users marked this as a favorite
In the two states whose rules I'm familiar with, neither of which are Massachusetts, the best way to get the maximum benefit would be to lump your payments into one or two weeks. So, report $4500 in the week you receive the first payment and report $4500 for the week of completion. You won't get unemployment benefits for those two weeks, but you will get unemployment for the other 8 weeks when you technically didn't receive anything.

You may have to indicate what happened with that job when you certify--whether you were fired, laid off, quit, or if the job ended. This is where you might get tripped up since it's a ten week project and ongoing for all ten weeks even though you aren't getting paid every single week. See if you can find info about how the state is defines each of those terms. Maybe there's a way that your contracting gig can meet one of the definitions, because if you say you quit the job or can't provide an explanation as to why you're no longer receiving that income it may trigger an investigation. MA may not even require you to explain, but my state did.
posted by Colonel_Chappy at 7:37 PM on April 26, 2013

I also did freelance work while collecting unemployment in MA. I cannot speak to the W2 vs 1099 thing, because all my work was clearly 1099. As far as the chronology for reporting, what I understood was that if I did 6 hours of work in a week, I had to report earning 6 hrs worth of the money *that* week or not file a claim at all. If you earn more than a third of your UE benefits doing freelance, then anything over that third will be deducted from the UE check.
(I think your math is a bit off understanding that 1/3 thing -- if your max benefit is $500, you can freelance earn up to $166 and change, and still get your full UE check. If you make $180, you will receive a check for $500 minus the $13 that was over the 1/3 of $500 = $487).

As I understand it, if you are employed for a week or spend a fulltime week on free lance, don't make a claim for that week. You were temporarily employed that week; that does not turn your claim 'off' but it does make you ineligible for the UE money that week. Then, the next week that you are not employed, you check in to make a claim for that week. You are allotted a certain total number of weeks of claims or possibly a sum total of money; if you don't make a claim one week, that week is not subtracted from the number of weeks you can claim benefits - it merely delays the claiming of that money.

BTW, you can subtract your expenses directly from the amount you report earning.

However, you can't work 6 hours every week and then because you are getting paid in a lump sums, only report it once in a while. Keep a journal of your hours.

I am not an expert though, so I won't feel bad if someone comes along and claims that I have this all wrong; I am just someone who tried to muddle through all the rules myself. The 1/3 math I'm pretty sure because I received UE checks that were $3 short, as predicted by my calculation above. Good luck!
posted by Tandem Affinity at 7:39 PM on April 26, 2013

I believe the basic rules are federal, and the one I am thinking of states that you must be able to work and actively seeking work to continue receiving unemployment benefits. If your freelance gig gets in the way of this, then you can't/shouldn't claim unemployment benefits.

And I'm pretty sure they don't care when you are paid, only when you worked.

It does seem like it would be most efficient to spend a week working the freelance gig, and then spend a week unemployed/looking for fulltime work.
posted by gjc at 8:32 PM on April 26, 2013

This is how unemployment worked in Louisiana. YMMV

You must claim amount of money earned in one week regardless of when you receive payment for that work. In your scenario, divide $9000 over the ten week period, $900.00 per week. You will not receive unemployment compensation for the week you earn in excess of $500, (your weekly unemployment compensation). However, you will be on the correct side of the law and not jeopardize future unemployment compensation. You will have to file a new claim when the 10 weeks have lapsed. The compensation you receive for unemployment is based on the last 18 months of employment earnings. The $9000 will be included in this amount (make a copy of check stub).

I was on unemployment and worked sporadically this past year. I did claim the amount I earned (not when paid) during that time. It is a good thing, because I was audited by the Department of Labor. Believe me, someone may rat you out to the Department of Labor. It is not worth the risk, plus it is against the law.
posted by JujuB at 9:07 PM on April 26, 2013

The philosophy, if you want to call it that, of Unemployment eligibility is that you are expected to put in five days a week looking for work. It is that time and effort on the job search that you are paid for. That is the theory: in general I think the Unemployment people understand that there are some weeks when there are not leads to pursue and there's only so much perusal of online job boards etc. that you fill your time with.

But the corollary on this is that if you are working at a job one day, that's one day you are not working at finding a job. So for that day you're not eligible for Unemployment, and your benefits for that week are reduced proportionally.

The upshot here is that it's not so much a matter of when you are paid as when you work. If you are working on this contract job five days a week and are receiving as compensation (at whatever time) the equivalent of full-time wages, then you are not considered eligible for Unemployment compensation for any of those full-time weeks.

What this means is that the process of receiving Unemployment can be complicated and tricky for people who are working on contract.

In New York State there is something called a "Benefit Year" which is the 52 weeks from the time you file your initial Unemployment claim. The "bank" of available benefits (26 X your calculated weekly payment) may be spread over that 52 week period until it is exhausted. I don't know exactly how this works in your state, but it seems like you should look into playing it straight and narrow, i.e., as soon as you start working the contract job, tell Unemployment you have returned to work, and as soon as the gig is finished, inform them that you are once again eligible for benefits.
posted by La Cieca at 10:21 PM on April 26, 2013

I live in MA and have dealt with this very issue.
In short, UC cares about when you work not when you receive payment.

If you have a 10 week contract of a fixed cost of $9000 you must treat that as $900/week for those 10 weeks worked less any schedule C business expenses (all of that directly attributable to that work performed plus your fixed annual business overhead amortized across annual hours worked). Your schedule C business expenses include cost of goods sold, 1/2 SE taxes, home office deduction, etc.).
posted by Consult The Oracle at 10:16 AM on April 27, 2013

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