Updated July 20, 2020
Funding the State Administration of Unemployment
Compensation (UC) Benefits

available through the annual federal appropriations process,
Background: A Joint Federal-State
designating ESAA funds to be used by DOL for the costs of
Program
administering the state UC programs.
The Unemployment Compensation (UC) program is
constructed as a joint federal-state partnership providing
Underlying Rationale for Federal
temporary and partial wage replacement to involuntarily
Funding of UC Administration
unemployed workers. Federal law sets broad guidelines
This atypical arrangement of state-funded benefits and
regarding UC benefits and financing. State laws establish
federally funded administration has its roots within the
specific requirements, resulting in 53 different UC
development of the Social Security program. In its 1935
programs operating in the states, the District of Columbia,
report, the President’s Committee on Economic Security
Puerto Rico, and the U.S. Virgin Islands. The U.S.
(CES) provided an outline of the UC program. It
Department of Labor (DOL) provides oversight for state
recommended that federal grants be provided to the states
UC programs. DOL also administers the federal portion of
for the administration of UC benefits. The committee
the UC system, including grants to the states for UC
asserted that the federal unemployment tax would be an
administration.
adequate source of funds for federal and state
administration and provide a level playing field for all
For a brief overview of the UC program, see CRS In Focus
states. By structuring the funding for administration to be
IF10336, The Fundamentals of Unemployment
paid from FUTA revenue, the federal government could
Compensation. For additional details on UC, see CRS
require proper standards of administration at the state level.
Report RL33362, Unemployment Insurance: Programs and
States today must comply with federal tax laws regarding
Benefits. For information on temporary measures related to
the administration of their UC programs or face increased
enhanced and expanded unemployment benefits enacted in
FUTA taxes.
the response to the current recession (February 2020-
present), see CRS Report R45478, Unemployment
For a discussion of the interaction of proper state
Insurance: Legislative Issues in the 116th Congress.
administration of the UC program and federal
unemployment tax law, see CRS Report R44527,
Dedicated Federal Tax Revenue Finances Unemployment Compensation: The Fundamentals of the
UC Administration
Federal Unemployment Tax (FUTA).
The UC system is financed through payroll taxes paid by
employers. State unemployment taxes (SUTA) may only
The full 1935 report from the CES can be accessed at
fund UC benefits and the state share of the Extended
https://www.ssa.gov/history/reports/ces5.html. (See the
Benefit (EB) program. Federal unemployment taxes
chapter titled “Unemployment Compensation: Outline of
(FUTA) on employers pay for the administration of the
Federal Act.”)
program (as well as other expenditures, including the
federal share of EB [50% under permanent law] and loans
Annual Appropriations for UC
to insolvent states).
Administration
As discussed above, each fiscal year, funds are made
The net FUTA tax rate on employers in states with UC
available through the appropriations process to make
programs that are in compliance with all federal rules is
distributions of FUTA revenue for state UC administration,
0.6% on the first $7,000 of each worker’s earnings per year.
and for the federal costs of administration. Annual
(The FUTA tax rate for employers is 6.0% on the first
appropriations to DOL for administrative expenses are
$7,000 of each worker’s earnings, but a 5.4% credit against
based upon DOL’s assessment of state budgetary
the federal FUTA tax is available to employers in states
requirements, not the size of FUTA collections. These
with complying UC programs, bringing the net FUTA tax
appropriations customarily include a base level of funding
down to 0.6%.) DOL projects that $7.0 billion in FUTA
as well as an additional contingent appropriation. The
taxes will be collected in FY2020.
appropriations language customarily provides a baseline
estimate of national unemployment, as measured by the
FUTA revenues are deposited into an account, the
volume of unemployment compensation claims expected to
Employment Security Administration Account (ESAA), in
be filed per week (the average weekly insured
the federal Unemployment Trust Fund (UTF) and then 20%
unemployment [AWIU]). Additionally, the contingent
of the deposits are immediately transferred to the Extended
funding includes a trigger based upon the average volume
Unemployment Compensation Account (EUCA), which
of weekly UC claims exceeding the AWIU baseline. For
funds the federal share of EB. These funds are made
example, under the President’s FY2021 budget proposal,
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link to page 2 Funding the State Administration of Unemployment Compensation (UC) Benefits
for every 100,000 increase in the total AWIU above the
states to justify additional resources above the levels in the
1,728,000 baseline, an additional $28.6 million in funding
cost accounting data for the budget year.
would be available. (The proposal may be accessed at
https://www.dol.gov/sites/dolgov/files/general/budget/2021/
The RJM forms and instructions that state agencies use to
CBJ-2021-V1-07.pdf.)
request funds are available at https://oui.doleta.gov/rjm/.
If the need for contingency funds exceeds the base
State-Level Base and Above-Base Allotments
appropriation but the national AWUI is less than the
DOL funds grants to states for the administration of their
contingent appropriation threshold, then either Congress
UC programs. These grants are allocated by DOL at the
must enact a supplemental appropriation or states have to
beginning of the fiscal year and apportioned to the states
reduce administrative expenses or provide additional state
quarterly—as long as the economic situation of the state has
funding from a different revenue stream or state general
not dramatically changed. DOL typically withholds a
funds (as SUTA funds may only pay for UC and EB). Once
portion of the total state administrative appropriation to
the AWUI is above the contingent appropriation threshold,
have additional funds available for states experiencing
DOL notifies the Office of Management and Budget, which
higher workloads. These “above-base” funds are allocated
then releases funds from the contingent appropriation.
at the state’s request once it has been determined that its
workload has increased. For FY2020 base allotments, see
Table 1 provides information on various annual
https://oui.doleta.gov/unemploy/content/futa/
appropriations proposals and enacted funding for UC state
fy2020suia.asp.
administration for FY2018-FY2020.
State-Level Supplemental Funds
Table 1. Funding for State Administration of
If a portion of the above-base funds remains unallocated to
Unemployment Compensation, FY2018-FY2020
the states, DOL may make supplemental funding available
(in thousands of dollars)
to states for various uses. In recent years, such
supplemental grants from DOL have supported states’

FY2018
FY2019
FY2020
efforts related to UC program integrity and performance
improvements as well as reemployment assessments.
Request
$2,635,775
$2,492,816
$2,615,230
House
$2,665,775
$2,515,816
$2,618,230
See, for example, a September 2017, DOL Unemployment
Insurance Program Letter 22-17, “Unemployment Insurance
Senate
$2,637,600
$2,515,816
n/a
(UI) Supplemental Funding Opportunity for State Consortia
Enacted
$2,639,600
$2,515,816
$2,540,816
to Modernize Tax and Benefit Systems,” September 8,
2017, available at https://oui.doleta.gov/dmstree/uipl/
Source: Compiled by CRS from laws, congressional bil s, and reports
uipl2k17/uipl_2217.pdf.
and DOL budget justifications.
UC Appropriations and Sequestration
Notes: The House and Senate columns include amounts from the
The sequester order required by the Budget Control Act of
most recent Chamber or Committee action, as compiled from the
2011 (BCA; P.L. 112-25) and implemented on March 1,
CRS Appropriations Status Table at http://crs.gov/
2013 (after being delayed by P.L. 112-240), affected some
AppropriationsStatusTable/Index.
but not all types of UC expenditures. Most UC benefits
Authority for DOL Grants to States for
payments are not subject to the sequester reductions. But
UC Administration
the federal share of EB and most forms of administrative
funding are subject to the sequester reductions.
Federal payments from DOL to the states for the
administration of UC are authorized under Title III of the
The FY2020 sequestration order requires a 5.9% reduction
Social Security Act (42 U.S.C. §502). The U.S. Labor
in all nonexempt nondefense mandatory expenditures, but
Secretary determines the funds that each state receives for
no sequestration reductions are applicable to discretionary
the program’s administrative costs. These grants to the
programs, projects, and activities. Thus, FY2020 UC
states are based on (1) the population of the state; (2) an
administrative grants to the states are not subject to a
estimate of the number of persons covered by the state UC
reduction, while the 50% federal share of EB payments is
law and the cost of proper and efficient administration of
subject to the reduction.
such law; and (3) such factors as the U.S. Labor Secretary
finds relevant.
For additional details on this issue, see the section
“Unemployment Insurance Benefits and the Sequester”
How DOL Determines Administrative
in
Grants to States
CRS Report R45478, Unemployment Insurance: Legislative
Issues in the 116th Congress.
Currently, DOL determines the size of each state’s
administrative grant through the Resource Justification
Model (RJM). The RJM is designed to reflect the states’
Julie M. Whittaker, Specialist in Income Security
Katelin P. Isaacs, Specialist in Income Security
current methods of administering the UC program,
including their adoption of new technologies. The RJM
Abigail R. Overbay, Senior Research Librarian
collects data from state cost accounting records and allows
IF10838
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Funding the State Administration of Unemployment Compensation (UC) Benefits


Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
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wish to copy or otherwise use copyrighted material.

https://crsreports.congress.gov | IF10838 · VERSION 5 · UPDATED

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