NEW YORK — New York. -- The new emergency unemployment compensation law, like the one before it, both gives and takes away. It gives up to 26 more weeks of jobless pay to certain people who are out of work. And to finance those extended benefits, it takes money away from the rest of us.
As dictated by the budget agreement of 1990, all new spending has to be offset -- on paper, at least -- by higher tax collections, to remind us that government benefits cost real money.
If you're unemployed, take careful note of exactly who qualifies for emergency aid. You get it if you've exhausted your basic state benefits and haven't already had a run of extended unemployment pay. Barbara Farmer, director of the office of program management for the federal Unemployment Insurance Service, says that unemployment offices are getting calls from people who previously got extended benefits, hoping to qualify again. Unfortunately, they can't -- at least, not for their current bout of joblessness.
If you do qualify under the new law, you get an extra 20 or 26 weeks of unemployment pay, depending on the jobless rate in your state. State unemployment offices will be looking at their records, to find out who's eligible. But don't wait for the notice; if you think you may be included, call and ask.
How will these benefits be paid for? In two ways that affect individuals:
(1) If you have a company pension plan, and get a lump-sum distribution, you'll now be taxed in a new way. This change could cost you money, unless you learn to work around it.
To explain this takes an example. Say that you leave your job and are entitled to a $10,000 distribution from your company retirement-savings account. Today, you can take that check, redeposit it in an Individual Retirement Account within 60 days, and pay no current tax. But starting next year, your company has to withhold 20 percent of your cash distribution ($2,000, in this example) for federal taxes.
That leaves you with $8,000 in hand. But if you put only $8,000 into an IRA, out of your $10,000 distribution, you'll have made a $2,000 withdrawal! You'll owe taxes on that money, and probably a penalty if you're under age 59 and a half. To avoid these costs, you'll need to come up with $2,000 in cash to bring the IRA up to its full $10,000 strength. The $2,000 that was withheld for taxes will be be included in your refund after you file your tax return. But in the meantime, you may have to scramble for funds.
Fortunately, the law provides a way out of this dilemma, says Deborah Walker, a partner in the accounting firm, KPMG Peat Marwick. Your company will be able to transfer the whole $10,000 directly into an IRA, without a dollar of it passing through your hands. That way, nothing will be withheld for tax. But you'll have to know about the dodge, and request it.
How does this shell game raise the $2.1 billion claimed in the law? The government will get the temporary use of the money that it has to refund when you file your return. It also gains a "forced tax," from people who can't afford to replace the 20 percent that the government withheld. Sounds unfair to me.
(2) More money will be raised from people whose adjusted gross incomes this year exceed $105,250 if single and $157,900 if married filing jointly. Currently, your personal exemptions are reduced or eliminated -- but you were supposed to get them back in 1995. The new law puts you off until 1996. (Any bets on whether you'll be put off again?)
The previous law extending unemployment benefits, passed last November, also monkeyed with taxes without officially raising them. Certain higher-income taxpayers, who file quarterly estimated tax returns, are now being tapped for a higher percentage of their total tax liability.
In the future there shouldn't be so many political battles about emergency jobless benefits. The new law changes the permanent extended-payment program to make more people eligible.
Starting next March, the states can opt for an easier definition of unemployment, in order to make benefits click in earlier. Also, once you get benefits, they will be easier to keep. The rules will be eased a little bit, regarding how many job contacts you have to make each week in order to continue getting benefits. For the unemployed, every little bit helps.
-! Washington Post Writers Group