Order Code 95-742 EPW
Updated July 28, 2003
CRS Report for Congress
Received through the CRS Web
Unemployment Benefits: Legislative Issues
in the 108th Congress
Specialist in Social Legislation
Domestic Social Policy Division
Changes in the federal-state unemployment compensation (UC) system are likely
to be considered during the 108th Congress. Legislation has been introduced to reform
and expand the UC system. The 107th Congress enacted the Temporary Extended
Unemployment Compensation (TEUC) program (P.L. 107-147), which included a 13week extension of UC benefits, a $8 billion distribution to states, and 13 additional
weeks of extended UC benefits in high unemployment states. These temporary benefits
ended on December 28, 2002; however in the first law passed by the 108th Congress, the
TEUC program was extended through the end of May 2003 (P.L. 108-1) and
subsequently extend again through December 31, 2003 (P.L. 108-26). Several proposals
have been introduced to extend or expand the TEUC program. Most recently, the
Congress enacted special TEUC benefits for displaced airline related workers, known
as TEUC-A (P.L. 108-11). (This report will be updated as legislative activity warrants.)
The UC system, funded by both federal and state payroll taxes, pays benefits to
covered workers who become involuntarily unemployed for economic reasons and meet
state-established eligibility rules. Federal administration of UC is under the U.S.
Department of Labor (DoL). The UC system, established by the Social Security Act of
1935 (P.L. 74-271), operates in each state, the District of Columbia, Puerto Rico, and the
Virgin Islands. Federal law sets broad rules that the 53 state programs must follow and
levies a payroll tax on employers under the Federal Unemployment Tax Act (FUTA).
States set most of the specific rules for eligibility, benefits, and financing. States also
process the claims and pay the benefits. The UC system helps counter economic trends.
When the economy grows, UC revenue rises and program spending falls, thereby slowing
growth. In a recession, revenue falls and program spending rises, stimulating the
economy. Benefits totaling $53.2 billion are expected to be paid to 10.5 million UC
claimants in all programs during FY2003.
Coverage. Federal law defines the jobs a state UC program must cover to avoid
its employers’ having to pay the maximum FUTA tax rate (6.2%) on the first $7,000 of
Congressional Research Service ˜ The Library of Congress
each employee’s annual pay (Table 1). If a state complies with all federal rules, the net
FUTA tax rate is only 0.8%. A state must cover jobs in firms that pay at least $1,500 in
wages during any calendar quarter or employ at least one worker in each of 20 weeks in
the current or prior year. The FUTA tax is not paid by governmental or nonprofit
employers, but state programs must cover government workers and all workers in
nonprofits that employ at least four workers in each of 20 weeks in the current or prior
Table 1. FUTA Tax Rates and Taxable Wage Ceilings
2008 & later
Benefits. To receive unemployment compensation benefits, claimants must have
enough recent earnings to meet their state’s earnings requirements. States usually
disqualify claimants who lost their jobs because of: inability to work or unavailability for
work; voluntarily quitting without good cause; discharge for job-related misconduct;
refusal of suitable work without good cause; or a labor dispute. Generally, benefits are
based on wages in covered work over a 12-month period. Most state benefit formulas
replace half of a claimant’s average weekly wage up to a weekly maximum. Weekly
maximums in 2002 ranged from $133 (Puerto Rico) to $512 (Massachusetts), and, in
states that provide dependents’ allowances, up to $768 (Massachusetts). The average
weekly benefit nationwide is estimated to be $259 for FY2003. Benefits are available for
up to 26 weeks (30 weeks in Massachusetts and Washington). The average benefit
duration in FY2003 is expected to be 19.6 weeks. A federal-state extended benefits (EB)
program offers benefits for an additional 13 to 20 weeks in states with unemployment
rates above certain threshold levels.
Financing. The 0.8% FUTA tax funds federal and state administration, the federal
share of EB, loans to insolvent state UC accounts, and state employment services. States
levy their own payroll taxes to fund UC benefits. State ceilings on taxable wages range
from the $7,000 FUTA federal taxable wage ceiling (11 states) up to $30,200 (Hawaii).
State UC tax rates are experience-rated. (Employers generating the fewest claimants have
the lowest rates.) State tax rates averaged 1.8% of taxable wages and 0.6% of total wages
in FY2003. State UC revenue is deposited in U.S. Treasury accounts as federal revenue
in the budget. State Unemployment Trust Fund accounts are credited for this revenue.
These credits allow Treasury to reimburse states for their benefit payments without annual
appropriations, but these reimbursements do count as federal budget outlays. If a state
trust fund account becomes insolvent, a state may borrow federal funds. Unemployment
Trust Fund revenue exceeded outlays from FY1995- FY 2001, but outlays significantly
exceeded trust fund revenue in FY 2002 and FY2003 (Table 2).
Table 2. Revenue and Spending Associated With
Unemployment Compensation, FY1995-FY2003
(in billions of dollars)
State UC taxes
UC outlays, total
UC revenue, total
Source: U.S. Dept. of Labor. UI Outlook, January 2003.
* Less than $50 million.
Legislative Issues in the 108th Congress
Proposal to Extend Unemployment Compensation Benefits
The EB program provides for additional weeks of benefits up to a maximum of 13
weeks during periods of high unemployment, and up to a maximum of 20 weeks in certain
states with extremely high unemployment. EB benefits are 50% federally funded, with
states funding 50% from their trust funds. The benefits are triggered when a state’s
insured unemployment rate (IUR) or total unemployment rate (TUR) reaches certain
levels. However, the EB program has been viewed by some as not being sufficiently
sensitive to changes in the economy. The Congress has acted 4 times — in 1971, 1974,
1982, and 1991 — to establish temporary programs of extended UC benefits.1
The Temporary Extended Unemployment Compensation (TEUC) program was
enacted on March 9, 2002, as part of the Job Creation and Worker Assistance Act of 2002
(P.L. 107-147). The TEUC program provides up to 13 weeks of federally funded benefits
for unemployed workers in all states who have exhausted their regular UC benefits. In
addition, up to an additional 13 weeks are provided in certain high unemployment states
For more information on extended UC benefits, see CRS Report RL31277, Temporary
Programs to Extend Unemployment Compensation, by Jennifer E. Lake.
that have an IUR2 of 4% or higher and meet certain other criteria (TEUC-X). P.L. 107147 also provided for a one-time distribution of $8 billion to states in surplus federal
unemployment funds, known as Reed Act funds.
TEUC benefits are payable, to individuals who, in addition to meeting other
applicable state UC law provisions, (1) file an initial claim that was in effect during or
after the week of March 15, 2001; (2) exhaust regular benefits or have no benefit rights
due to the expiration of a benefit year ending during or after the week of March 15, 2001;
(3) have no rights to regular or extended benefits under any state or federal law; and (4)
are not receiving benefits under Canadian law.3 In addition, individuals must also have
had 20 weeks of full-time work, or the equivalent in wages, in their base periods.4
These temporary benefits ended on December 28, 2002, however in the first law
passed by the 108th Congress, these benefits were extended through the end of May 2003
(P.L. 108-1).5 Several bills have been introduced in the 108th Congress to further extend
and expand the TEUC program. A number of bills were introduced during the first week
of the session which, although they contained differing dates through which they would
have extended the TEUC program, were superceded by P.L. 108-1. These include, H.R.
17, H.R. 19, H.R. 162, H.R. 209, and H.R. 228. Subsequently, other bills have also been
introduced to extend and expand the TEUC program. Some would extend the program
beyond the end of May 2003; some provide for additional weeks of benefits for
unemployed who have exhausted their benefits; some would temporarily establish
alternative triggers for qualifying states as high-unemployment for the TEUC-X program.
Bills with some combination or all of these provisions include H.R. 682, H.R. 1239, H.R.
1652, S. 35, S. 225, S. 270, and S. 923. In addition, H.R. 1652, S. 270, and S. 923 would
also temporarily expand regular UC eligibility in all states to include part-time
unemployed workers seeking part-time jobs and the use of the most recent wages in
determining benefit eligibility, while S. 270 would go further temporarily increase UC
weekly benefit amounts by the greater of 15% or $25.
H.R. 2046 includes provisions similar to H.R. 1652 for extending and expanding the
TEUC and TEUC-X programs. H.R. 2111 would extend the TEUC program through
September 27, 2003, with a phaseout period through December 27, 2003, and provide an
alternative trigger that used a seasonally adjusted TUR for fiscal year 2002. H.R. 2185
would extend the TEUC program through December 31, 2003, with a phaseout period
through March 31, 2004. S. 1079 would extend the TEUC program through November
30, 2003, with a phaseout period through February 28, 2004. H.R. 2188 would also
extend TEUC through November 30, 2003, with a phaseout period through February 28,
The IUR is computed by dividing the number of UC claimants by the number of individuals in
jobs covered by UC.
DoL, Unemployment Insurance Program Letter No. 17-02.
A worker’s benefit rights are determined on the basis of his/her employment in covered work
over a prior period, called the base period. In most states, an individual’s base period is a four
quarter, 52-week period that depends on when the worker first applies for benefits or first begins
drawing benefits. However, several states lengthen the base period under specified conditions.
See CRS Report RS21397, Unemployment Benefits: Temporary Extended Unemployment
Compensation (TEUC) Program, for additional details.
2004, and would provide 8 additional weeks of TEUC benefits for individuals who had
exhausted their TEUC benefits.
On May 22, 2003, the House passed H.R. 2185. The Senate unanimously passed the
bill on May 23. The President signed the bill into law on May 28, 2003 (P.L. 108-26).
Proposals to Reform Unemployment Compensation
In recent years, calls for reforming the UC program have emerged from various
interest groups, including labor, employers, and state employment agencies. These groups
argue that changes in the economy and the workforce since the program was enacted in
the 1930s have led to inefficiencies and inequities in the UC program that need to be
reformed. Today more women are in the workforce. They, and many new entrants into
the labor force are often employed in part-time, temporary or short-term jobs that can
leave them ineligible for UC during periods of unemployment. Many see the declines in
UC recipiency as due, in part, to stricter state eligibility requirements related to earnings
minimums and reduced growth in manufacturing. Employers see inefficiencies in the
administration of the program, including complex tax forms, multiple tax filing
requirements, and complex record keeping requirements.
In the 108th Congress, H.R. 1802, introduced on April 11, 2003, would require states
to expand eligibility for UC benefits under certain circumstances. Under the bill,
eligibility would be expanded to include individuals who would otherwise qualify except
for the fact that they were seeking part-time work. States would be required to use an
individual’s most recent earnings in determining UC eligibility (often referred to as the
alternate base period), which could make it easier for certain new or low-wage workers
to qualify for UC benefits. States would be prohibited from denying UC benefits to
individuals solely because they were seasonal workers, because they left employment
because of sexual harassment, because of loss of adequate child are for children under age
13, or because the individual is a victim of domestic violence. States would be required
to provide and distribute information explaining UC eligibility in the state; UC could not
be denied to otherwise eligible individuals because the individual was employed at the
minimum wage for at least 20 hours a week for 30 weeks in a base period; and UC
benefits would be payable to individuals who are a parent of a newborn or adopted child
and who takes unpaid leave from an employer in the first year after birth or adoption.
H.R. 1802 would expand the UC tax wage base from the first $7,000 of employee
wages to the taxable wage base used for Social Security taxes ($87,000 in 2003), and
lower the gross FUTA tax from 6.2% to 5.59%. The bill would require the Secretary of
Labor to approve any state law which provides that UC benefits would not be denied to
any individual because the individual had separated from employment to move with their
spouse to a new place of residence due to the spouse starting a new job in a new location.
The Secretary would also be required to approve a state law which provides for
augmented UC benefits for individuals who qualify for UC and whose average weekly
wages during their qualifying base period do not exceed 50% of the average weekly wages
subject to contributions under the UC laws of the state. The bill also would increase or
decrease the interest premiums credited to state unemployment accounts, subject to
certain limits specified in the bill, if the state exceeded or failed to meet the funding goal
of the state in a calendar quarter established under the bill. The bill would lower the EB
insured unemployment rate (IUR) program triggers from 5% to 4% and from 6% to 5%,
and eliminate certain federal requirements for EB.
H.R. 2188, in addition to extending and expanding TEUC (described briefly above),
provides several reforms to the UC system. The bill would lower the permanent EB
program’s insured unemployment rate (IUR) triggers from 5% to 4%, would provide for
variable earnings to be credited to state UC trust fund accounts depending on the state’s
ability to meet certain funding goals, and would provide interest-free advances to state UC
accounts only to states who met certain funding goals. The bill would provide a two-year
suspension of federal income tax on UC benefits for taxable years beginning after
December 31, 2002, and permit states to collect FUTA taxes from employers in the state
instead of FUTA taxes being sent to the Secretary of DoL for taxable years beginning
after December 31, 2003. States would be required to distribute state-specific information
packets to unemployed individuals explaining the eligibility requirements for UC benefits.
As part of the FY2004 budget request, the Administration proposes several reforms
to the UC program. These included gradually shifting responsibility for financing the UC
benefits and administration to states over a 5-year transition period beginning in January
2005; lowering the IUR trigger in the permanent EB program from 5% to 4%; and
eliminating the federal requirements for EB eligibility so that state eligibility requirements
for regular UC benefits would apply to EB.
Other Unemployment Compensation Issues
Benefits for Certain Workers Unemployed by Terrorist Attack and The
War on Iraq. In response to the unemployment of airline and airline related workers
caused by the September 11, 2001 terrorist attacks, subsequent security measures that
have been taken, and the war with Iraq, P.L. 108-11, was signed into law on April 16,
2003. This temporary program provides up to 39 weeks of benefits to qualified
individuals whose regular UC claim is based in whole, or in part, on qualifying
employment with a certified air carrier, at a facility at an airport, or with a producer or
supplier of products or services for an air carrier.6 The program has two tiers of benefits,
known as TEUC-A and TEUC-AX. Under TEUC-A, eligible workers could receive up
to 39 weeks of benefits, while workers in a state classified as a high-unemployment state
could receive up to an additional 13 weeks of benefits after exhausting TEUC-A. These
programs are authorized through December 29, 2003, and there is a phaseout period for
individuals with an existing claim that will run through December 26, 2004.
Excluding UC Benefits from Gross Income. Under current law, UC benefits
are required to be included in gross income for tax purposes. H.R. 798, introduced on
February 13, 2003, would repeal the inclusion in gross income of unemployment
compensation. H.R. 1187, introduced on March 11, 2003, would impose a retroactive,
2-year moratorium on the inclusion of UC benefits from gross income for taxable years
2002 and 2003.
For more detailed information, see U.S. Department of Labor, Special Temporary Extended
Unemployment Compensation for Displaced Airline Related Workers.