Updated June 2, 2023
Funding the State Administration of Unemployment
Compensation (UC) Benefits
Background: A Joint Federal-State
Underlying Rationale for Federal
Program
Funding of UC Administration
The Unemployment Compensation (UC) program is
This atypical arrangement of state-funded benefits and
constructed as a joint federal-state partnership providing
federally funded administration has its roots within the
temporary and partial wage replacement to involuntarily
development of the Social Security program. In its 1935
unemployed workers through mandatory payments of UC.
report, the President’s Committee on Economic Security
Federal law sets broad guidelines regarding UC benefits
provided an outline of the UC program. It recommended
and financing. State laws establish specific requirements,
that federal grants be provided to the states for the
resulting in 53 different UC programs operating in the
administration of UC benefits. The committee asserted that
states, the District of Columbia, Puerto Rico, and the U.S.
the FUTA would be an adequate source of funds for federal
Virgin Islands. The U.S. Department of Labor (DOL)
and state administration and provide a level playing field
provides oversight for state UC programs. DOL also
for all states. By structuring the funding for administration
administers the federal portion of the UC system, including
to be paid from FUTA revenue, the federal government
grants to the states for UC administration. Additional weeks
could require proper standards of administration at the state
of mandatory payments of unemployment benefits may be
level. States today must comply with federal tax laws
available through the Extended Benefit (EB) program
regarding the administration of their UC programs or face
depending on state law, additional federal eligibility
increased FUTA taxes.
requirements, and economic conditions in the state. For a
brief overview of the UC and EB programs, see CRS In
For a discussion of the interaction of proper state
Focus IF10336, The Fundamentals of Unemployment
administration of the UC program and federal
Compensation.
unemployment tax law, see CRS Report R44527,
Unemployment Compensation: The Fundamentals of the
Dedicated Federal Tax Revenue Finances Federal Unemployment Tax (FUTA).
UC Administration
The UC system is financed through payroll taxes paid by
The full 1935 President’s Committee report can be accessed
employers. State unemployment taxes (SUTA) may fund
at https://www.ssa.gov/history/reports/ces5.html. (See the
only UC benefits and the state share of the EB program.
chapter titled “Unemployment Compensation: Outline of
Federal unemployment taxes (FUTA) on employers pay for
Federal Act.”)
the administration of the UC and EB programs (as well as
other expenditures, including the federal share of EB [50%
Annual Appropriations for UC
under permanent law] and loans 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. These
(The FUTA tax rate for employers is 6.0% on the first
discretionary annual appropriations to DOL for
$7,000 of each worker’s earnings, but a 5.4% credit against
administrative expenses are based upon DOL’s assessment
the federal FUTA tax is available to employers in states
of state budgetary requirements, not the size of FUTA
with complying UC programs, bringing the net FUTA tax
collections. These appropriations customarily include a
down to 0.6%.) DOL projects that $5.8 billion in FUTA
base level of funding as well as an additional contingent
taxes will be collected in FY2023.
appropriation. The appropriations language customarily
provides a baseline estimate of national unemployment as
FUTA revenues are deposited into an account, the
measured by the volume of unemployment compensation
Employment Security Administration Account (ESAA), in
claims expected to be filed per week (the average weekly
the federal Unemployment Trust Fund, and then 20% of the
insured unemployment [AWIU]). Additionally, the
deposits are immediately transferred to the Extended
contingent funding includes a trigger based upon the
Unemployment Compensation Account, which funds the
average volume of weekly UC claims exceeding the AWIU
federal share of EB. These funds are made available
baseline. For example, under the President’s FY2024
through the annual federal appropriations process,
budget proposal, for every 100,000 increase in the total
designating ESAA funds to be used by DOL for the costs of
AWIU above the 2,365,000 baseline, an additional $28.6
administering the state UC programs.
million in funding would be available. (The proposal may
be accessed at https://www.dol.gov/sites/dolgov/files/
general/budget/2024/CBJ-2024-V1-07.pdf.)
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link to page 2 Funding the State Administration of Unemployment Compensation (UC) Benefits
If the need for contingency funds exceeds the base
State-Level Base and Above-Base Allotments
appropriation, but the national AWIU 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—so long as the economic situation of the state
funding from a different revenue stream or state general
has not dramatically changed. DOL typically withholds a
funds (as SUTA funds may pay only for UC and EB). Once
portion of the total state administrative appropriation to
the AWIU 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 at
then releases funds from the contingent appropriation.
the state’s request once it has been determined that its
workload has increased. For FY2023 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
fy2023suia.asp.
administration for FY2022-FY2024.
State-Level Supplemental Funds
Table 1. Funding for State Administration of
If a portion of the above-base funds remains unallocated to
Unemployment Compensation, FY2022-FY2024
the states, DOL may make supplemental funding available
(in thousands of dol ars)
to states for various uses. In recent years, such
supplemental grants from DOL have supported states’

FY2022
FY2023
FY2024
efforts related to UC program integrity and performance
improvements as well as reemployment assessments.
Request
$3,125,214
$3,184,635
$3,506,318
House
$3,125,214
$3,184,635
n/a
See, for example, DOL Unemployment Insurance Program
Letter (UIPL) 17-21, “Guidelines for Fiscal Year (FY) 2021
Senate
n/a
n/a
n/a
State Agency Unemployment Insurance (UI) Resource
Enacted
$2,850,816
$3,134,635
n/a
Allocations, Supplemental Budget Requests (SBRs), and
Above-Base Funding,” April 27, 2021, available at
Source: Compiled by CRS from laws, congressional bil s, reports,
https://wdr.doleta.gov/directives/attach/UIPL/UIPL_17-
and DOL budget justifications.
21.pdf.
Notes: The House and Senate rows include amounts from the most
recent chamber or committee action, as compiled from the CRS
UC Appropriations and Sequestration
Appropriations Status Table at http://crs.gov/
The sequester order required by the Budget Control Act of
AppropriationsStatusTable/Index.
2011 (P.L. 112-25) and implemented on March 1, 2013
(after being delayed by P.L. 112-240) affected some but not
Authority for DOL Grants to States for
all types of UC expenditures. Most UC benefits payments
UC Administration
are not subject to the sequester reductions. But the federal
Federal payments from DOL to the states for the
share of EB and most forms of administrative funding are
administration of UC are authorized under Title III of the
subject to the sequester reductions.
Social Security Act (42 U.S.C. §502). The U.S. Labor
Secretary determines the funds that each state receives for
The FY2023 sequestration order requires a 5.7% reduction
the program’s administrative costs. These grants to the
in all nonexempt nondefense mandatory expenditures, but
states are based on (1) the population of the state, (2) an
no sequestration reductions are applicable to discretionary
estimate of the number of persons covered by the state UC
programs, projects, and activities. Thus, the discretionary
law and the cost of proper and efficient administration of
FY2023 UC administrative grants to the states are not
such law, and (3) such factors as the U.S. Labor Secretary
subject to a reduction, while the 50% federal share of any
finds relevant.
mandatory EB payments is subject to the reduction. (As of
the cover date of this report, no state has been in an EB
How DOL Determines Administrative
payable period in FY2023.)
Grants to States
Currently, DOL determines the size of each state’s
For additional details on this issue, see DOL, UIPL No. 4-
administrative grant through the Resource Justification
23, “Implementation of Sequestration under the Budget
Model (RJM). The RJM is designed to reflect the states’
Control Act of 2011 (BCA) for Mandatory Unemployment
current methods of administering the UC program,
Insurance Programs for Fiscal Year (FY) 2023,” March 22,
including their adoption of new technologies. The RJM
2023, available at https://www.dol.gov/agencies/eta/
collects data from state cost accounting records and allows
advisories/unemployment-insurance-program-letter-no-04-
states to justify additional resources above the levels in the
23.
cost accounting data for the budget year.
Julie M. Whittaker, Specialist in Income Security
The RJM forms and instructions that state agencies use to
Katelin P. Isaacs, Specialist in Income Security
request funds are available at https://oui.doleta.gov/rjm/.
Abigail R. Overbay, Senior Research Librarian
IF10838
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Funding the State Administration of Unemployment Compensation (UC) Benefits


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