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A critical financial lifeline for unemployed workers is about to go away.
What happens next?
In mid-March, when the effects of the virus really began to be felt, Congress passed the CARES Act, giving millions of out-of-work Americans a much-needed reprieve. With it, anyone collecting unemployment benefits automatically received an additional $600 per week on top of that. This extra $2,400 a month from the federal government was a crucial help for many.
But those payments are set to expire on July 31, according to the legislation.
The unemployment rate in June was 11.1%, with 17.8 million people currently collecting unemployment benefits. As of July 31, all 17.8 million will no longer receive the enhanced support.
“It makes me anxious. How are people going to be able to do this?” asks Jill Schlesinger, an analyst for CBS News and host of the “Jill on Money” podcast.
Due to a quirk of the calendar, Schlesinger points out, the benefit is likely to run out before July 31. Most states pay their weekly benefits on either Saturday or Sunday, so the added insurance will end on July 25 and 26, depending on your state.
Congress is discussing whether to extend the payments, but there’s currently no agreement in sight between the parties about a new relief bill, Politico reported. According to one proposal being discussed, the weekly amount would be lowered to between $200 to $400, the Washington Post reported.
Once the current benefit expires, unemployed Americans will collect unemployment insurance based on the normal rules set by their states. The amount of money they receive varies from person to person. You won’t know how much you’ll receive from your state until after you apply, since each state has its own formula to determine the amount. Typically, it’s a percentage of your previous 12 months of income.
With federal payments to unemployed Americans set to expire soon, having an emergency savings fund is more important than ever.
But there are strict caps. For example, Mississippi offers a maximum of $235 per week, compared to those filing for unemployment in Massachusetts, who can receive up to $1,234 per week, according to the Department of Labor.
In the current scheme, about 68% of Americans could collect more on unemployment than they were getting paid at their jobs, according to a study by economists at the University of Chicago. Critics of the CARES Act have said it does not incentivize people to go back to work. If another package does pass, “You can assume that it will be no more than 100% of a worker’s usual pay,” Treasury Secretary Steven Mnuchin told cable channel CNBC last week.
On the other hand, proponents argue it is an effective economic stimulus while also providing a much-needed lifeline for people to weather the public-health crisis.
Many service workers, for example in the restaurant business as reported by Eater, are essentially being forced to go back to work now that the added benefit is expiring, potentially sacrificing their own health — and that of their loved ones — in the process.
“The real fear among economists is that this leads to a pretty devastating, long-term unemployment situation,” she says.
Your best strategy? “Have as much money as you can in cash,” Schlesinger says. And if you are fortunate enough to have a job right now, this might be the time to create your emergency reserve fund.