Side business can hurt unemployment benefits
By Dana Dratch • Bankrate.com

The upside of working for yourself? It's hard to get fired. That's one reason why many people who have full-time jobs also have a little business on the side.

But surprisingly, if you've recently lost your 9-to-5 job, you might want to consider taking a temporary hiatus from your side business as well in order to maximize your unemployment benefits.

While some states encourage out-of-work individuals to start or grow their own small businesses, other localities will deduct a portion of any money earned from the weekly benefits.

The bottom line is, if you don't want to cheat yourself or the system, it pays to call the local unemployment compensation office and ask lots of questions.

"It depends on the law of each state and the nature of the work," says Peter Bennett, chair of the Tort, Trial and Insurance section of the American Bar Association.

Where am I?
The first consideration from any unemployment insurance office is that your side business doesn't interfere with your ability to find and accept your next full-time job.

"It's a cliche," but finding employment "is a full-time job, and the most demanding job you'll ever have," says Andrew J. DuBrin, psychologist, author of "Bouncing Back: How to Stay in the Game When Your Career Is on the Line" and professor emeritus at the Rochester Institute of Technology.

The general rule of thumb for unemployment eligibility: "You must be able to accept work, and you must be looking for work," says Loryn Lancaster, unemployment insurance program specialist with the U.S. Department of Labor.

Beyond that, each of the states has a slightly different set of rules for mixing unemployment benefits and side income.

With some states, part-time self employment doesn't affect your unemployment insurance check as long as you're available full-time and looking for work. So if you want to run an online store on weekends, or do some consulting work after hours, your benefit check won't suffer.

Some states realize that the benefits check might cover the mortgage, but you'll need some form of extra income to stay afloat, says Reich Gardner, president of The Financial Education Co., a publishing house that focuses on personal finance.

"That's why they don't penalize you for part-time employment," he says.

Other states will deduct earnings or a portion of your earnings from your weekly check.

"Illinois takes 50 percent of what you earn on the side," says Michael D. McCormick, attorney and co-author of "Fired, Laid Off, Out of a Job: A Manual for Understanding, Coping, Surviving."

"The way the state looks at it, while you're earning unemployment, any income you earn will be considered," he says.

Still, others will set a threshold for earnings. So while an extra $100 a week from your entrepreneurial activities may not affect your benefits, earning $150 might impact your bottom line.

Different kinds of money
Not all money is the same when it comes to unemployment, either.

Some states may differentiate between wages (what you are paid for your work, whether it's consulting with a Fortune 500 firm or repairing your neighbor's car) and money that you earn from selling items.

"If I'm selling stuff on eBay, I'm not really getting a wage," says Bennett, managing partner of the Bennett Law Firm, which focuses on employment law.

"That's different than consulting," he says.