Make us your home page
Instagram

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

Loading...
  1. City Council approves $5 million for Clearwater Marine Aquarium expansion

    Briefs

    CLEARWATER — The City Council on Thursday approved contributing $5 million to the Clearwater Marine Aquarium for its massive expansion project.

    Clearwater has agreed to contributed $5 million to the Clearwater Marine Aquarium 
's $66 million expansion project.. [ Clearwater Marine Aquarium] 


  2. Trigaux: Florida, Tampa Bay lagging in growth of their startups

    Economic Development

    The annual assessment of how entrepreneurs are doing across the country is out from the Kauffman Foundation — among the best watchers of the nation's startup scene. How do Florida and Tampa Bay fare?

    Lured by financial incentives, startup GeniusCentral relocated from Manatee County in 2015 to St. Petersburg, promising to creatye 40 new jobs. It took downtown space in an appropriately creative workpace for entrepreneurs. It did not last there, later moving back to less expensive space in Manatee. A new Kauffman Index report on entrepreneurship found that Florida is a good place to launch startups but a tougher place to grow them.
[SCOTT KEELER    |      TIMES]
  3. Pleasant dreams: sleep travel site gives high marks to Tampa airport

    Airlines

    TAMPA — Traveling might be considered closer to a nightmare than a dream for many. But that might be different for those who travel through Tampa International Airport. It was ranked the No. 3 overall best airport in North America by Sleeping in Airports, a travel site that tracks the best airports to catch some …

    Tampa International Airport was ranked as the No. 3 best overall airport by travel site Sleeping in Airports. | [Times file photo]
  4. Google parent leads $1B Lyft investment, deepening Uber rift

    Business

    SAN FRANCISCO — Google's parent company is throwing its financial support behind ride-hailing service Lyft, deepening its rift with market leader Uber.

    This  file photo shows a smartphone displaying the Lyft app.Google's parent company, Alphabet Inc., is throwing its financial support behind ride-hailing service Lyft, deepening its rift with market leader Uber. [Associated Press, 2016]
  5. ReliaQuest opens storefront in mock city of JA Biztown

    Economic Development

    TAMPA — ReliaQuest, a Tampa-based cybersecurity company, opened a "storefront" Wednesday at JA Biztown. The storefront is part of a mock city where students learn economic concepts and run businesses. About 20 real-life Tampa Bay companies sponsor storefronts that local students get to run for a day as part of a …

    ReliaQuest, a Tampa-based cybersecurity company, opened a "storefront" Wednesday at JA Biztown, a mock city where students learn to run businesses. | [MALENA CAROLLO, Times]