Updated March 17, 2022
The Fundamentals of Unemployment Compensation
A Joint Federal-State Program
state payroll taxes under the State Unemployment Tax Acts
The joint federal-state Unemployment Compensation (UC)
(SUTA).
program provides income support through UC benefit
payments. Although there are broad requirements under
UC in a Snapshot, FY2021
federal law regarding UC benefits and financing, the
specifics are set out under each state’s laws. States
4.4M
$340
21.0 weeks
8.9 M
administer UC benefits with U.S. Department of Labor
Average Weekly
Average
Average
New
(DOL) oversight, resulting in 53 different UC programs
Claims
Weekly
Duration
UC
operated in the states, the District of Columbia, Puerto
Benefit
of Claim
Beneficiaries
Rico, and the Virgin Islands.

Total UC expenditures include benefits and administrative
costs. During economic expansions, states fund

approximately 85%-90% of all UC expenditures—as almost
Revenues: $52.7B
all of the benefits are state-financed by state unemployment
Federal Unemployment Tax (FUTA): $6.3B
State Unemployment Tax (SUTA): $46.4B
taxes. In comparison, federal expenditures are relatively


small during these expansions (approximately 10%-15%) in
which federal expenditures are primarily administrative

grants to the states financed by federal unemployment
Regular Outlays: $63.8B
taxes. During FY2021, federal expenditures were 27% of
Administration (FUTA financed): $6.1B
total permanent-law, regular UC program outlays. Almost
Regular UC Benefit (SUTA financed): $46.5B
88% of all FY2021 Unemployment Insurance (UI) benefit
UC Federal Employees (UCFE, Agency pays): $330M
expenditures were federally financed once the temporary
UC Ex-Servicemembers (UCX, Service pays): $240M
COVID-19 UI benefits outlays are included in the
Extended Benefits (temporarily 100% FUTA financed): $10.6B
calculation.
Temporary COVID-19 UI Benefit Outlays
Objectives
(General Fund financed): $317.9B
The UC program’s two main objectives are to provide
PUA: $74.7B
temporary partial wage replacement to involuntarily
PEUC: $78.9B
unemployed workers and to stabilize the economy during
FPUC ($300/week): $164.2B
recessions. These objectives are reflected in the current UC
MEUC ($100/week): $62.9M
program’s funding and benefit structure.
Source: U.S. Department of Labor (DOL), Employment and
Training Administration, Office of Unemployment Insurance.
During economic expansions, UC program revenue rises
through increased tax revenue whereas UC program
Benefits
spending falls as fewer workers are unemployed and
receive benefits. The effect of collecting more taxes than
The UC program pays benefits to workers who become
are spent on benefits dampens demand in the economy.
involuntarily unemployed for economic reasons and meet
This also creates a surplus of funds or a “cushion” of
state-established eligibility rules. The permanent-law UC
available funds for the UC program to draw upon during a
program generally does not provide UC benefits to the self-
recession. In a recession, UC tax revenue falls and UC
employed, those who are unable to work, or those who do
program spending rises as more workers lose their jobs and
not have a recent earnings history.
receive UC benefits. The increased amount of UC payments
States usually disqualify claimants who lost their jobs
to unemployed workers dampens the economic effect of
because of inability to work, voluntarily quit without good
lost earnings by injecting additional funds into the
cause, were discharged for job-related misconduct, or
economy.
refused suitable work without good cause. To receive UC
Authorization
benefits, claimants must (1) have enough recent earnings
(distributed over a specified period) to meet their state’s
The underlying framework of the UC system is contained in
earnings requirements; and (2) be able, available, and
the Social Security Act. Title III of the act authorizes state
actively searching for work.
grants for administering state UC laws; Title IX authorizes
the various components of the federal Unemployment Trust
Most states provide up to a maximum of 26 weeks of UC
Fund (UTF); and Title XII authorizes advances or loans to
benefits. Under current state laws, the maximum duration of
insolvent state programs. UC is financed by federal taxes
UC benefits ranges from up to 12 weeks (under certain
under the Federal Unemployment Tax Act (FUTA) and by
economic conditions in Florida and North Carolina) to up to
30 weeks (Massachusetts). For more information on UC
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The Fundamentals of Unemployment Compensation
eligibility and benefit duration in states, see CRS Report
COVID-19 unemployment benefits expired in September
R46687, Unemployment Insurance (UI) Benefits:
2021. For information on PUA, PEUC, MEUC, FPUC, and
Permanent-Law Programs and the COVID-19 Pandemic
MEUC, see CRS Report R46687, Unemployment Insurance
Response.
(UI) Benefits: Permanent-Law Programs and the COVID-
19 Pandemic Response. For more details on earlier
Former federal workers may be eligible for unemployment
temporary UI programs, see CRS Report RL34340,
benefits through the Unemployment Compensation for
Extending Unemployment Compensation Benefits During
Federal Employees (UCFE) program. Former U.S. military
Recessions.
servicemembers may be eligible for unemployment benefits
through the Unemployment Compensation for Ex-
Financing
Servicemembers (UCX) program. For more information on
The UC program is financed by federal payroll taxes under
the UCX program, see CRS Report RS22440,
the FUTA and by state payroll taxes under SUTA. The
Unemployment Compensation (Insurance) and Military
0.6% effective net FUTA tax paid by employers on the first
Service.
$7,000 of each employee’s earnings (no more than $42 per
worker per year) funds federal and state administrative
In FY2021, states paid $46.5 billion in regular UC benefits
costs, loans to insolvent state UC accounts, the federal
and federal agencies paid $0.6 billion in UCFE/UCX
share (50%) of Extended Benefit (EB) payments (100%
benefits, which are considered on-budget, mandatory
temporarily for most of FY2022), and state employment
expenditures. The UC program’s administrative costs,
services. For FY2021, an estimated $6.3 billion was
which go through the federal appropriations process, were
collected in federal FUTA taxes, whereas an estimated
estimated to total $6.1 billion.
$46.4 billion was collected in SUTA taxes to finance UC
Unemployment Benefits for the Long-
benefits. For more details on UC financing, see CRS Report
Term Unemployed
RS22077, Unemployment Compensation (UC) and the
Unemployment Trust Fund (UTF): Funding UC Benefits.
Federal law augments the regular UC benefit with the
Extended Benefit (EB) program if state economic
Job Search and Return to Work
conditions are met. In response to economic recessions,
The job search behavior of the unemployed can be
Congress has often created additional weeks of temporary
influenced by changing the timing, generosity, and duration
unemployment benefits (including the now-expired
of UC benefits. The availability of benefits may create a
unemployment benefits enacted in response to the COVID-
disincentive to search for and accept reemployment,
19 pandemic).
increasing unemployment and unemployment duration.
Extended Benefits
Although most economists would agree that UC benefits
UC benefits may be extended at the state level by the
create some disincentives to find work quickly, these
permanent-law EB program if high unemployment exists
disincentives are somewhat balanced by a relatively low
within the state. After regular unemployment benefits are
replacement rate of wages by UC benefits and a recognition
exhausted, the EB program may provide up to an additional
that proper allocation of human resources and human
13 or 20 weeks of benefits, depending on worker eligibility,
capital requires adequate job search time. For more analysis
state law, and economic conditions in the state. The EB
of the interaction between job search and UC receipt,
program is funded 50% by the federal government and 50%
including policy proposals to return UC claimants to work,
by the states. However, for almost all of FY2021, the EB
see CRS Report R43044, Expediting the Return to Work:
program was temporarily 100% federally funded, totaling
Approaches in the Unemployment Compensation Program.
$10.6 billion. The EB program was established by the
Federal-State Extended Unemployment Compensation Act
Program Integrity
of 1970 (EUCA; P.L. 91-373) (26 U.S.C. §3304, note). For
Program integrity continues to be of concern to the UC
more details on the EB program, see CRS Report R46687,
program. The Office of Management and Budget (OMB)
Unemployment Insurance (UI) Benefits: Permanent-Law
has designated UC as a “high-priority” program (i.e., a
Programs and the COVID-19 Pandemic Response.
program with estimated improper payments of more than
Temporary Programs
$100 million a year). In the fourth quarter of FY2021, the
UC improper payment rate was reported to be 8.7%, with a
Congress has acted nine times—1958, 1961, 1971, 1974,
total of $7.6 billion in improper payments. Although states
1982, 1991, 2002, 2008, and 2020—to create temporary,
currently have authority to recover UC overpayments
additional UI benefits in response to recessions. Most
through a variety of means, there are legislative proposals
recently, in response to the COVID-19 recession, Congress
in the 117th Congress to further address this issue. For more
created Pandemic Unemployment Assistance (PUA),
information on program integrity proposals, see CRS
Pandemic Emergency Unemployment Compensation
Report R46789, Unemployment Insurance: Legislative
(PEUC), and Federal Pandemic Unemployment
Issues in the 117th Congress, First Session.
Compensation (FPUC) under P.L. 116-136, the
Coronavirus Aid, Relief, and Economic Security (CARES)
Act; and Mixed Earner Unemployment Compensation
Julie M. Whittaker, Specialist in Income Security
(MEUC) under P.L. 116-260, the Consolidated
Katelin P. Isaacs, Specialist in Income Security
Appropriations Act, 2021. For FY2021, these benefits
totaled $317.9 billion and were financed by General Fund
IF10336
transfers from the U.S. Treasury. All of these temporary
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The Fundamentals of Unemployment Compensation


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