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![handle is hein.crs/govelvs0001 and id is 1 raw text is:
Congressional Research Service
Inforrming the legislative debate since 1914
Updated June 2, 2023
Funding the State Administration of Unemployment
Compensation (UC) Benefits
Background: A Joint Federa[-State
Program
The Unemployment Compensation (UC) program is
constructed as a joint federal-state partnership providing
temporary and partial wage replacement to involuntarily
unemployed workers through mandatory payments of UC.
Federal law sets broad guidelines regarding UC benefits
and financing. State laws establish specific requirements,
resulting in 53 different UC programs operating in the
states, the District of Columbia, Puerto Rico, and the U.S.
Virgin Islands. The U.S. Department of Labor (DOL)
provides oversight for state UC programs. DOL also
administers the federal portion of the UC system, including
grants to the states for UC administration. Additional weeks
of mandatory payments of unemployment benefits may be
available through the Extended Benefit (EB) program
depending on state law, additional federal eligibility
requirements, and economic conditions in the state. For a
brief overview of the UC and EB programs, see CRS In
Focus IF10336, The Fundamentals of Unemployment
Compensation.
Dedicated Federal Tax Revenue Finances
UC Administration
The UC system is financed through payroll taxes paid by
employers. State unemployment taxes (SUTA) may fund
only UC benefits and the state share of the EB program.
Federal unemployment taxes (FUTA) on employers pay for
the administration of the UC and EB programs (as well as
other expenditures, including the federal share of EB [50%
under permanent law] and loans to insolvent states).
The net FUTA tax rate on employers in states with UC
programs that are in compliance with all federal rules is
0.6% on the first $7,000 of each worker's earnings per year.
(The FUTA tax rate for employers is 6.0% on the first
$7,000 of each worker's earnings, but a 5.4% credit against
the federal FUTA tax is available to employers in states
with complying UC programs, bringing the net FUTA tax
down to 0.6%.) DOL projects that $5.8 billion in FUTA
taxes will be collected in FY2023.
FUTA revenues are deposited into an account, the
Employment Security Administration Account (ESAA), in
the federal Unemployment Trust Fund, and then 20% of the
deposits are immediately transferred to the Extended
Unemployment Compensation Account, which funds the
federal share of EB. These funds are made available
through the annual federal appropriations process,
designating ESAA funds to be used by DOL for the costs of
administering the state UC programs.
Underlying Rationale for Federal
Funding of UC Administration
This atypical arrangement of state-funded benefits and
federally funded administration has its roots within the
development of the Social Security program. In its 1935
report, the President's Committee on Economic Security
provided an outline of the UC program. It recommended
that federal grants be provided to the states for the
administration of UC benefits. The committee asserted that
the FUTA would be an adequate source of funds for federal
and state administration and provide a level playing field
for all states. By structuring the funding for administration
to be paid from FUTA revenue, the federal government
could require proper standards of administration at the state
level. States today must comply with federal tax laws
regarding the administration of their UC programs or face
increased FUTA taxes.
For a discussion of the interaction of proper state
administration of the UC program and federal
unemployment tax law, see CRS Report R44527,
Unemployment Compensation: The Fundamentals of the
Federal Unemployment Tax (FUTA).
The full 1935 President's Committee report can be accessed
at https://www.ssa.gov/history/reports/ces5.html. (See the
chapter titled Unemployment Compensation: Outline of
Federal Act.)
Ann ual A ppropriations for UC
Admin istration
As discussed above, each fiscal year, funds are made
available through the appropriations process to make
distributions of FUTA revenue for state UC administration
and for the federal costs of administration. These
discretionary annual appropriations to DOL for
administrative expenses are based upon DOL's assessment
of state budgetary requirements, not the size of FUTA
collections. These appropriations customarily include a
base level of funding as well as an additional contingent
appropriation. The appropriations language customarily
provides a baseline estimate of national unemployment as
measured by the volume of unemployment compensation
claims expected to be filed per week (the average weekly
insured unemployment [AWIU]). Additionally, the
contingent funding includes a trigger based upon the
average volume of weekly UC claims exceeding the AWIU
baseline. For example, under the President's FY2024
budget proposal, for every 100,000 increase in the total
AWIU above the 2,365,000 baseline, an additional $28.6
million in funding would be available. (The proposal may
be accessed at https://www.dol.gov/sites/dolgov/files/
general/budget/2024/CBJ-2024-V 1-07.pdf.)](ViewImageLocal?handle=hein.crs/govelvs0001&div=1&collection=&method=preview&ext=.png&size=3)