About Unemployment Benefits

A Federal-State Lifeline for the Unemployed

People waiting in line to apply for unemployment benefits
Unemployment Benefits Line. Allan Tannenbaum / Getty Images

It was Close to the Worst of Times

Unemployment compensation is not a government benefit you like to think about taking. But, in December 2007, the United States officially entered its worst economic recession since the Great Depression. By March 2009, an additional 5.1 million Americans had lost their jobs leaving more than 13 million workers unemployed. The national unemployment rate stood at 8.5 percent and rising.

By the end of March 2009, an average of 656,750 Americans a week were turning in their first-ever applications for unemployment compensation. Where does the money to pay those benefits come from? How does unemployment compensation work?

Defense Against Economic Despair

The federal-state unemployment compensation (UC) program was created as part of the Social Security Act of 1935, in response to the Great Depression. Millions of people who had lost their jobs were unable to buy goods and services, which just led to more layoffs. Sound familiar? Today, unemployment compensation represents the first and perhaps last line of defense against the ripple effect of joblessness. Then intention of the program is to provide eligible, unemployed workers with a weekly income adequate to allow them to afford the necessities of life, including food, shelter and clothing while they look for new jobs.

Costs are Truly Shared by Federal and State Government

Operating as a federal-state partnership, UC is based on federal law, but administered by the states.

The UC program is unique among U.S. social insurance programs in that it is funded almost totally by either federal or state taxes paid by employers.

Currently, employers pay federal unemployment taxes of 6.2 percent on the first $7,000 earned by each of their employees during a calendar year. These federal taxes are used to cover the costs of administering the UC programs in all states.

In addition, the federal UC taxes pay one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provide for a fund from which states may borrow, if necessary, to pay benefits.

State UC tax rates vary from state-to-state. State UC taxes may be used only to pay benefits to unemployed workers. The state UC tax rate paid by employers is based on the state's current unemployment rate. As their unemployment rates go up, the states are required by federal law to raise the UC tax rate paid by employers.

Almost all wage and salary workers are now covered by the federal-state UC program. Railroad workers are covered by a separate federal program. Ex-service members with recent service in the Armed Forces and civilian federal employees are covered by a federal program, with the states paying benefits from federal funds as agents of the federal government.

How Long Do UC Benefits Last?

Most states currently pay UC benefits to eligible unemployed workers for up to 26 weeks. In periods of very high and rising unemployment nationwide or in individual states, "extended benefits" may be paid for as long as 13 to 46 additional weeks, depending on state law. The cost of the "extended benefits" is paid equally from state and federal funds.

The 2009 economic stimulus bill - The American Recovery and Reinvestment Act - provided for an extra 33 weeks of extended UC payments to workers whose benefits were scheduled to expire at the end of March 2009. The bill also increased the UC benefits paid to some 20 million jobless workers by $25 per week.

Under the Unemployment Compensation Extension Act of 2009 (H.R. 3548), signed into law by President Obama on Nov. 6, 2009, unemployment compensation benefit payments will be extended for an additional 14 weeks in all states. In states where the unemployment rate is at or above 8.5 percent, jobless workers will be eligible for 6 additional weeks of benefits.

During the final quarter of 2008, the UC program paid about $34.9 billion in benefits to some 8 million unemployed workers.

The average unemployment insurance benefit in 2009 is $292 a week according to the Department of Labor.

Who Runs the UC Program?

At the federal level, the overall UC program is administered by the U.S. Department of Labor's Employment and Training Administration. Each state maintains its own state unemployment insurance agency.

How Do You Get Unemployment Benefits?

Eligibility for UC benefits, along with the length of time benefits can be collected and methods of applying for benefits are set by the laws of the various states.

In all states, only workers determined to have lost their jobs through no fault of their own are eligible to receive UC benefits. In other words, if you are fired or quit voluntarily, you probably will not be eligible for UC benefits.

About Guide to Job Searching Alison Doyle has prepared an excellent Guide to Unemployment Benefits, including information on eligibility, and how to apply for benefits.

When Your Unemployment Compensation Runs Out

About Job Searching Guide Alison Doyle offers sound advice on what to do when "your unemployment checks have run out, are about to run out, or, if you can't get by on unemployment benefits."