Unemployment Insurance and “Millionaires”: Recent Data and Policy Considerations

Unemployment Insurance and “Millionaires”: Recent Data and Policy Considerations

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December 19, 2022
Unemployment Insurance and “Millionaires”: Recent Data and
Policy Considerations
Under the federal-state Unemployment Insurance (UI)
Table 1. Estimated Tax Returns with Reported
system, unemployed workers—including high-income
Unemployment Insurance Income, Tax Year 2020
workers—who meet program requirements are eligible to
receive UI benefits. States, which determine many of the
Number of
UI Income
Share of
eligibility requirements for UI benefits, may not restrict

Returns
(thousands)
UI Income
eligibility based on individual or household income. The
Total returns
29,901,078
$405,286,667
100%
now-expired enhanced UI benefits created by Congress in
response to the COVID-19 pandemic substantially
Nontaxable
11,751,128
$160,669,684
39.6%
increased total spending on UI benefits. Increased UI
returns
expenditures are reflected in both wider UI benefit receipt
and higher UI benefit amounts by households with different
Adjusted Gross Income (AGI) Category
levels of income.
Under $15,000 4,897,836
$58,622,392
14.5%
Background
$15,000 to
8,035,606
$110,884,432
27.4%
States may not restrict UI eligibility by income level other
under $30,000
than considering those income sources deemed related to
$30,000 to
6,635,340
$96,343,498
23.8%
their unemployment. This requirement is based upon a 1964
under $50,000
U.S. Department of Labor decision that precludes states
from means-testing to determine UI eligibility. The U.S.
$50,000 to
6,244,871
$85,704,713
21.1%
Labor Secretary expanded the restriction on means-testing
under
to severely limit the factors states may use to determine UI
$100,000
entitlement. Under this interpretation, federal law requires
$100,000 to
3,249,149
$42,469,211
10.5%
entitlement to compensation to be determined from facts or
under
causes related to the individual’s state of unemployment.
$200,000
Thus, the Labor Department requires that states pay UI
benefits to all eligible workers regardless of their income
$200,000 to
819,260
$10,995,360
2.7%
level because the income levels did not influence the fact or
under $1
cause of unemployment.
mil ion
Recent Data
≥$1 mil ion
19,015
$261,061
0.1%
Data on UI receipt by income level are available annually
Source: Created by CRS using IRS SOI data 2020, Table 1.4.
from the IRS Statistics of Income (SOI), “Individual
Notes: AGI is total income minus statutory adjustments. Data are
Income Tax Returns” Publication 1304. The SOI uses a
IRS estimates based on a stratified random sample of tax returns
stratified random sample drawn from individual tax returns.
before any audit had been conducted. UI income is rounded to the
Data are selected before audit from the IRS. Table 1
nearest $1,000. IRS Table 1.4 applies the term Unemployment
presents recently released 2020 data, including the number
Compensation when referring to UI benefits. The federal income
of tax returns reporting UI income and the amount of UI
taxation definition of UI benefits includes regular state Unemployment
income by adjusted gross income (AGI).
Compensation (UC) benefits, Extended Benefits (EB), Trade
Adjustment Assistance (TAA) benefits, Disaster Unemployment
SOI estimates are based on tax returns from tax filing units,
Assistance (DUA), and railroad unemployment benefits and has
which include an individual’s income or a married couple’s
included al temporary UI benefits since UI benefits became taxable.
income. Therefore, reported income may come from an
individual receiving UI but may also include income from a
As seen in Table 1, out of the estimated 29.9 million
spouse. Also, these tax filing data somewhat understate the
households reporting UI income and filing a tax return, just
total number of individuals receiving UI income. If a tax
over an estimated 19,000 households with at least $1
filer’s total income from taxable sources is below the filing
million in AGI received UI benefits in tax year 2020. The
threshold, the tax filer is not required to file a tax return. If
approximately $261 million in UI benefits paid to these
the individual or household does not file a return, they are
households represents less than 0.1% of total UI benefits
not included in SOI data. If the individual or household
reported to the IRS.
files a tax return but their total income is not taxable, they
are categorized as a nontaxable return. Thus, tax return data
In 2020, the enhanced COVID-19 UI benefits provided an
do not include the full amount of UI received by
unprecedented expansion of benefit amount (an additional
individuals.
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link to page 1 Unemployment Insurance and “Millionaires”: Recent Data and Policy Considerations
$600/week or $300/week when authorized) as well as an
provide unemployment benefits to all workers without
extension of benefits to a new population of self-employed
income restrictions): S. 1944, H.R. 235, and S. 310. A
workers and independent contractors. As a result, there was
number of bills in the 113th Congress would also have
likely higher UI benefit amounts and wider benefit receipt
imposed income restrictions for the purposes of UI benefits:
in 2020 than in prior years.
S. 18, H.R. 2448, H.R. 3979, H.R. 4415, H.R. 4550, H.R.
4970, S.Amdt. 2714, S. 2097, S. 2148, S. 2149, and S.
The American Rescue Plan Act of 2021 (P.L. 117-2, §9042)
2532.
allowed taxpayers to exclude from federal income tax up to
$10,200 in UI benefits if the taxpayer’s modified AGI was
Policy Considerations
less than $150,000. The $150,000 threshold applied to all
The policy considerations associated with proposals to
filing statuses, including married filing jointly. For
restrict payment of UI benefits from those with high
taxpayers who filed joint returns, up to $10,200 of
incomes include:
unemployment compensation could have been excluded for
each spouse. Table 1 includes all reported UI income,
 Potential effect on federal expenditures: Under
including benefits that were tax excluded. See CRS Report
permanent law, most UI benefit outlays are state funded
R47105, Taxing Unemployment Insurance (UI) Benefits:
with state taxes. Thus, most savings would generally
Federal- and State-Level Tax Treatment During the
accrue to the states.
COVID-19 Pandemic for full details.
 Issues related to administrative costs: Proposals to
Legislative Proposals
require states to prevent the use of federal funds to pay
Legislation has been introduced in the 117th Congress to
UI benefits to higher income workers may add burdens
prevent UI benefit receipt for high-income unemployed
and costs to UI administration. Earnings are used to
individuals. This policy issue was legislatively active in the
calculate UI benefit amounts, but state UI administrators
112th and 113th Congresses when prior enhanced UI benefits
may not collect information on capital gains, interest, or
were authorized in response to the Great Recession
other sources of income. Moreover, the state UI
(December 2007 to June 2009).
programs do not link marital or household earnings.
Alternatively, administering the proposal through the tax
Legislation in the 117th Congress
system may be a relatively cost effective approach.
On November 30, 2022, Senator Joni Ernst introduced S.
However, adding a separate tax rate for UI benefits may
5148, the Ending Unemployment Payments to Jobless
further complicate an already complicated tax form.
Millionaires Act of 2022. This bill would prohibit the
payment of federal funds for UI benefits to an individual in
 Issues related to benefit access: Adding complexity to
any year when the individual’s AGI is $1 million or more.
the UI application process could discourage some
eligible individuals from applying for benefits. Workers
Previous Legislation
may consider the time and other costs associated with
In the 112th and 113th Congresses, a number of proposals
applying for benefits to outweigh the additional funds.
would have restricted or highly taxed the UI income of
Additionally, a worker who becomes unemployed early
unemployed workers with high incomes. While the debate
in the tax year may expect (erroneously) to have income
in Congress commonly refers to a policy of restricting the
over the course of the year above the applicable
receipt of unemployment benefits by “millionaires,” various
threshold and therefore may choose not to apply for
proposals have specified different income thresholds (e.g.,
benefits based on an expectation that those benefits
AGI of at least $500,000 vs. AGI of at least $750,000 vs.
would only be recaptured later through the tax system.
AGI of at least $1 million). Some of these proposals would
While conditioning eligibility for UI benefits based on
have used the federal income tax system to tax UI benefits
income may decrease expenditures, the policy may
for certain AGI levels at 100% tax rate (effectively clawing
erode the underlying goal of providing insurance against
back the benefit), while other proposals would have
involuntary unemployment for all workers.
prevented the use of federal funds to pay UI benefits to any
individual with resources of at least $1 million in the
Additional Resources
preceding year.
CRS Report R46687, Unemployment Insurance (UI)
Benefits: Permanent-Law Programs and the COVID-19
In the 112th Congress, the House-passed version of H.R.
Pandemic Response
3630 (the Middle Class Tax Relief and Job Creation Act)
included a provision that would have imposed an income
IRS, “Individual Income Tax Returns Complete Report,”
tax on unemployment benefits for high-income individuals.
Publication 1304, https://www.irs.gov/statistics/soi-tax-
Based on a scaled approach, the tax would have increased
stats-individual-income-tax-returns-complete-report-
to 100% for a single tax filer with an AGI of $1 million (or
publication-1304
AGI of $2 million for a married couple filing a joint return).
The provision was not included in the final version of the
Katelin P. Isaacs, Specialist in Income Security
legislation that became P.L. 112-96.
Julie M. Whittaker, Specialist in Income Security
Several other bills introduced in the 112th Congress would
IF12289
have restricted unemployment benefit receipt based on
income (i.e., they would change the current requirement to
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Unemployment Insurance and “Millionaires”: Recent Data and Policy Considerations

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