Does Vacation Pay Affect Unemployment Benefits?

Unemployment benefits eligibility and amounts depend on a number of factors, including your past employment history and the amount of income earned. Unemployment regulations vary by state but many allow vacation pay to affect your unemployment benefits. Regardless of your state regulations, your state labor office wants to know when you receive vacation pay, which you must report as a condition of your benefits. If you don't, you could receive overpayment penalties, including fines or jail time.

Tip

If COVID-19 has affected your job, you may be eligible for unemployment benefits. Head to the Department of Labor's website for updates, and check out careeronestop to learn how to file for unemployment in your state.

You may also be eligible for Pandemic Unemployment Assistance (PUA), which is now available to individuals who have traditionally been ineligible for unemployment benefits (e.g. self-employed workers, independent contractors, gig workers)

Vacation pay is a monetary payout for your accrued vacation days while employed. Depending on your employer’s policies, you may ask to receive money for your vacation days instead of taking the days off. In some situations, after you leave a job, you may receive the monetary value of your vacation days in your last paycheck. At this point, vacation days affect unemployment benefits.

Unemployment benefits aren’t need-based, but they do take into account any income you’re receiving from other sources while you collect benefits. Most states consider vacation pay income and adjust your benefits to reflect that you earned income from another source. Some states deduct it directly from your unemployment benefit, dollar for dollar. Others give you an earned income allowance, whereby they allow you to receive a certain amount of vacation pay.. Everything above that allowance is deducted from your benefits, dollar for dollar. Still, other states deduct only a percentage of vacation pay.

Check with your state labor office for the laws that apply to you.

Regardless of how your state chooses to apply vacation pay to your unemployment benefits, the state labor office wants to hear about it from you. When you file your initial claim, you must answer truthfully the question about vacation pay and put in the amount you’ve received or the amount you anticipate receiving. Then, when you file your weekly claim for each payment, you have to report the vacation pay you received for that week. When the state receives that information, it determines your payment under state laws covering unemployment compensation and vacation pay.

Reporting your vacation pay is your duty as an unemployment claimant. If you fail to report it accurately, you could receive more benefits than you deserve. If the state finds out, it will force you to pay back that money, whether or not it was an accident. If it was intentional, payments could be docked from your claim as a punishment. In severe cases, the state can prosecute you for unemployment compensation fraud and you could receive jail time or fines.