Make us your home page

A look at how unemployment benefits are funded

A rack is filled with forms to help the unemployed and job seekers at a New York State Department of Labor career center in Albany. Unemployment is up and expected to go higher as the recession drags on.

Associated Press

A rack is filled with forms to help the unemployed and job seekers at a New York State Department of Labor career center in Albany. Unemployment is up and expected to go higher as the recession drags on.

WASHINGTON — Joblessness has reached new heights that would have been shocking just a few months ago, and all signs point to more layoffs as the recession drags on. That means more and more Americans are relying on unemployment benefits to get by. What's the source of funding for these payments — and is there any chance the coffers might dry up? Here are some questions and answers about the money that's distributed in unemployment benefits.

Where does the money come from?

It's raised through state and federal unemployment insurance taxes on employers. The federal tax is 6.2 percent on the first $7,000 in annual wages to each employee. State tax rates vary from state to state, as does the amount of each worker's income that's subject to the tax, which ranges from $7,000 to $34,000.

Do all employers in a given state pay the same?

No. The rate they pay depends on how many former employees have drawn jobless benefits — the more such workers an employer has, the higher the tax rate it must pay the state. The irony is that employers responsible for the most joblessness as a percentage of their work force — the ones that have gone out of business — cannot pay their share of unemployment taxes because they've gone under.

Are state and federal taxes the only sources of funding?

Not quite. A few states also impose unemployment insurance taxes on employees.

How is the federal money divided?

There are three federal accounts. One for state program administration; another for the 50 percent share of the extended benefits program (more on that later); the third for a loan fund for states with unusually high unemployment.

Is there a ceiling on how much money can be in the federal accounts or is it just allowed to grow and grow?

Federal law does set ceilings. When they're reached, the excess is sent to the states' unemployment trust funds in proportion to the amount of money that came from the states. The Congressional Budget Office, according to the U.S. Labor Department, calculated in its most recent estimate that the federal government would transfer about $9-billion to the states over the 2013-18 period. But that was calculated before the government had an understanding of the magnitude of the current economic recession.

Who runs the unemployment programs, and who determines the size of the benefit payments?

The states. Typically, the benefits run for 26 weeks. Sometimes, during times like these, states or the federal government extend the benefit period — the aforementioned extended benefits program. President Bush signed into law a 13-week extension in June for those who had already used up their benefits. He followed that in November with a seven-week extension — 13 weeks for the states with the highest unemployment rates.

How are the states doing with their own unemployment reserve funds?

Sixteen states had reserves in the range of zero to nine months as of Sept. 30, according to the Labor Department's most recent quarterly report. On the other extreme, Louisiana had 94 months of reserves, as its trust funds only dipped 3 percent during the previous 12 months.

Zero to nine months? Does that mean there was a state with no reserves at all?

Yes. As of June 30, Michigan's reserves already had $177-million in unpaid federal loans. To pay the interest on the loans, the state has imposed a solvency tax on an estimated 15 percent of its employers. Generally, they are businesses that have paid less in state unemployment taxes than their former employees received in jobless benefits.

Are the states with the biggest problems in maintaining reserves the ones with the highest unemployment rates?

Not necessarily. For the month of September, Michigan had an 8.7 percent jobless rate and no reserves. Meanwhile, New York had a much better unemployment rate — 5.2 percent — and yet barely had more reserves — only two months' worth.

A look at how unemployment benefits are funded 12/27/08 [Last modified: Wednesday, December 31, 2008 12:26pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Associated Press.

Join the discussion: Click to view comments, add yours

  1. Water Street Tampa unveils video showing downtown's transformation


    TAMPA — Water Street Tampa, the sweeping, 50-plus acre redevelopment project in Tampa's urban core, has unveiled new images and video of what the downtown district will look like upon completion.

    Strategic Property Partners released a conceptual image of what the Tampa skyline will look like once its redevelopment of 50-plus acres of downtown will look like. [Photo courtesy of  of SPP]
  2. Florida ranks high for workplace equality between men and women

    Working Life

    When it comes to the workplace, Florida ranks fifth in terms of gender equality, a WalletHub study released Tuesday found.

    Florida ranks high in terms of equality between men and women in the workplace. Pictured is Sandra Murman, county commissioner in 2015, talking about the differences in pay between men and women. | [Times file photo]
  3. Treasury secretary's wife boasts of travel on government plane, touts high fashion


    U.S. Treasury Secretary Steven Mnuchin's wife, Louise Linton, boasted of flying on a government plane with her husband to Kentucky on Monday and then named the numerous fashion brands she wore on the trip in an unusual social media post that only became more bizarre minutes later.

    Steven Mnuchin and his then- financee Louise Linton watch as President Donald Trump speaks during Mnuchin's swearing-in ceremony as  treasury secretary in the Oval Office of the White House on Feb. 13. [Mandel Ngan | AFP via Getty Images]
  4. Ford, Chinese partner look at possible electric car venture


    BEIJING — Ford Motor Co. and a Chinese automaker said Tuesday they are looking into setting up a joint venture to develop and manufacture electric cars in China.

    In this April 23, 2016 photo, attendees take smartphone photos at a promotional event for Ford Motor Company ahead of the Auto China car show in Beijing. Ford Motor Co. announced an agreement Tuesday, Aug. 22, 2017 with a Chinese partner to look into forming a joint venture to develop and manufacture electric cars in China. [AP Photo/Mark Schiefelbein]
  5. Judge throws out $458,000 condo sale, says Clearwater attorney tricked bidders

    Real Estate

    CLEARWATER — Pinellas County Circuit Judge Jack St. Arnold on Monday threw out the $458,100 sale of a gulf-front condo because of what he called an "unscrupulous" and "conniving" scheme to trick bidders at a foreclosure auction.

    John Houde, left, whose Orlando copany was the high  bidder June 8 at the foreclosure auction of a Redington Beach condo, looks in the direction of Clearwater lawyer and real estate investor Roy C. Skelton, foreground,  during a hearing Monday before Pinellas County Circuit Judge Jack St. Arnold.  [DOUGLAS R. CLIFFORD   |   Times ]