Unemployment insurance is designed to provide workers with weekly compensation if they've lost their jobs through no fault of their own. The U.S. Department of Labor oversees the administration of the federal-state unemployment compensation program, but each state is responsible for paying unemployment benefits to eligible individuals. When you apply for unemployment, you'll need to become familiar with several terms, including the earnings allowance, which dictates how much you can make while receiving benefits.

Weekly Claims Filing

As part of your weekly unemployment filing, you'll need to disclose how much money you earned that week, including income from work, self-employment, commissions, tips or severance payments. You have to report all of the money you earn during the week, regardless of whether or not you've actually been paid. Only Social Security benefits can be excluded from weekly income reporting. Your earning allowance is the maximum amount of compensation you can earn each week without affecting your benefit amount.

Calculating Earnings Allowance

Each state uses a different formula to determine the earnings allowance, but it's typically based on your weekly benefit amount. Your weekly benefits are based on your income for each of the four quarters before you filed for unemployment. In North Carolina, the weekly earnings allowance is determined by dividing your income from your highest earning quarter by 13, multiplying the result by 10 percent and rounding down to the nearest dollar. For example, if your highest quarter earnings totaled $5,000, you would divide this number by 13 to get $384.62. You would multiply this by 10 percent and then round down to get a weekly earnings allowance of $38.

Impact on Benefits

If you exceed the amount of your earnings allowance during any weekly claim period, the amount of your benefits for that week will be reduced by the difference. For example, let's assume your weekly benefit amount is $400 and your weekly earnings allowance is $75. If you earn $125 in a week, your unemployment benefits will be reduced by the $50 that exceeds the $75 earnings allowance. If you earn an amount that is equal to or greater than your weekly benefit, you won't be eligible to receive any benefits at all for that filing period.

Fraudulent Claims Filing

Failure to report any and all income you earn during your weekly filing period can have significant financial and legal consequences. Depending on the state, you may be deemed ineligible to file future unemployment claims. You'll also be responsible for repaying any benefits you received that you were not entitled to. If it's determined that you deliberately engaged in fraud, you could be prosecuted at the state or federal level, which may be punishable by fines or imprisonment. For example, the state of Arizona classifies unemployment fraud as a Class VI felony, and a conviction could result in a two-year prison term and a fine of up to $150,000 for each offense.