What are Insurable Earnings?
Insurable earnings are any types of earnings generated from insurable employment. As it relates to unemployment benefits, this would encompass any type of benefits that are paid to an employee in exchange for services rendered. Insurable earnings are often tendered as cash, but may also be provided in some other such as a benefit or gratuity.
The most common examples of insurable earnings have to do with the wages and salary provided to employees for services rendered. In terms of wages, the pay may be in the form of a fixed rate per hour of service, or based on the number of assigned tasks completed over the course of the pay period, a process that is sometimes called piecework. The provision of a salary, essentially a fixed amount of pay for each pay period, is also considered a type of insurable earnings.
Other forms of compensation also fit into the broad category of insurable earnings. Commissions and bonuses that are sometimes granted above and beyond wages and salary are included. Benefits such as pay for personal days, sick pay, and vacation time are also considered insurable for tax purposes. In some instances, providing room and board for employees would also fall into this category.
In terms of taxes, insurable earnings are generally subject to taxation. This makes it necessary for any form of the earnings to be reported to local, state, and federal tax agencies. Typically, the calculation of taxes due for a given period are based on the sum total of the wages, salaries, commissions and other forms of insurable earnings that are received by the employee during that specific pay period. Employers normally manage this reporting and calculation for each employee, withholding the appropriate amount of taxes and forward those taxes to the proper tax agency or agencies.
Identifying these benefits as insurable earnings is important, since the total amount of the compensation does have some impact on the amount of unemployment coverage and compensation that the individual may receive should he or she become unemployed under certain terms and conditions. While unemployment laws vary widely from one jurisdiction to another in terms of which events are eligible for unemployment compensation, calculating the compensation based on insurable earnings is very common. For this reason, employers are often required by law to report each type of earning as a separate line item on employee earnings statements or wage slips, making it easy to verify every type of relevant compensation tendered for the period under consideration.
@NathanG - You could always put that money in your 401K or a Health Savings Account which are both tax deductible. That would shelter it. But of course there are limits to what you can do with the money at that point. I don’t think there is a thing as tax free earnings, but you may want to increase your withholdings from each paycheck so that you owe less to the IRS.
@Charred - I get a year-end bonus at my job and that’s subject to taxation, so even the bonus is not what it appears to be on paper. I can’t spend the full amount.
Isn’t there any kind of money that we can get which is not subject to taxation? In my opinion bonuses should not be considered as part of insurable hours; they are at the discretion of the employer.
He certainly is not obligated to pay them, and so they are not wages in the usual sense of the term.
@SkyWhisperer - Nothing escapes the IRS as far as taxes goes. Not only your wages, but your tips as well, are considered taxable as well, as should be obvious, if you’re a server at a restaurant or something like that. Be sure to keep track of your tips.
Your employer should do that but sometimes they don’t, especially if it’s all in cash. The IRS will notice, however, if you don’t report tips. They will be very suspicious when they get your return and it says something like you made $2 per hour (or whatever the base is for servers) and no tips. That’s a clear red flag and they’ll come knocking on your door in short order.
While employment insurance earnings are important for unemployment benefits, there is a limit to how useful they are in that sense in my opinion. There is maximum insurable earnings limitation as I found out a few years back. Once you reach that maximum there is not much more that you can collect.
For example, when I got laid off I was paid $350 a week in unemployment benefits. Believe me, I made a lot more than that in my last salary, but that was the maximum amount. Of course it’s supposed to be a stop gap measure, I understand that; maybe some people can actually live on $350 a week but I couldn’t.
Fortunately I got a new job in relatively short order so I was able to move on with my life. But my point is that even if I had been making six figures at my last job I still think I would have gotten $350 a week.
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