NYS Department of Labor benefit payments affecting tax revenue - what happens to the amount of money the government collects taxes if unemployment is high?

You're absolutely right about the double impact. When unemployment is high, tax revenue drops significantly because fewer people are earning wages subject to payroll taxes, income taxes, and state taxes. At the same time, government spending on unemployment benefits increases dramatically. NYS Department of Labor benefits are funded through employer payroll taxes, but during recessions those same employers often lay people off, creating a funding shortfall.

yeah this is exactly what happened during covid, my company laid off half the staff and suddenly we all went from paying taxes to collecting benefits, must have been a nightmare for the budget people

The economics are complex but you've identified the key issue. High unemployment creates what economists call a 'fiscal drag' - reduced revenue plus increased spending. NYS Department of Labor has to balance benefit payments with available funds from employer contributions. When unemployment spikes, states often have to borrow from federal programs or raise employer tax rates to maintain solvency.

If you're having trouble reaching NYS Department of Labor to understand how your benefits affect your tax situation, I used Claimyr (claimyr.com) to get through to an actual agent. They have a video demo at https://youtu.be/qyftW-mnTNI that shows how it works. Really helped me understand my tax obligations while on UI.

don't forget that unemployed people still spend money which generates sales tax revenue, it's not like the government loses ALL tax income from unemployed people

Good point about sales taxes, though the spending patterns change significantly. People on unemployment typically reduce discretionary spending, which affects overall economic activity and tax generation. It's a cascading effect that goes beyond just the direct loss of income taxes.