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Unemployment Insurance (UI) was created as part of the Unemployment Compensation (UC) system by the Social Security Act of 1935 in response to the Great Depression, when millions of people lost jobs. The program helps cushion the impact of economic downturns and brings economic stability to communities, states, and the nation by providing temporary income support for laid off workers for periods between jobs.
In general, the Federal-State Unemployment Insurance Program provides temporary financial assistance to eligible workers who are unemployed through no fault of their own (as determined under State law), and meet other eligibility requirements of State law.
Each State administers a separate unemployment insurance program within guidelines established by Federal law.
Eligibility for unemployment insurance, benefit amounts and the length of time benefits are available are determined by the State law under which unemployment insurance claims are established.
In the majority of States, benefit funding is based solely on a tax imposed on employers. (Three (3) States require minimal employee contributions.)
The UC program is a Federal-state partnership based upon federal law, but administered by state employees under state law. Because of this structure, the program is unique among the country's social insurance programs. The UC program is also unique in that it is almost totally funded by employer taxes, either federal or state – only three states collect taxes from employees.
Rapid Response specialists gather information about the needs of laid off workers and organize services necessary to help them return to work. At employee orientation meetings, Rapid Response specialists inform workers about services and benefits designed to help laid off workers return to work. Unemployment Insurance is included among those services.
States receive funds in the form of grants or loans through an account in the Federal Treasury according to their unemployment experiences. (See: Unemployment Compensation, Federal-State Partnership)
Unemployed workers receive paid benefits based on prior wages. They may also receive tax credits if eligible, and services for job placement through the One-Stop Career Centers and other state agencies.
The Unemployment Insurance program is administered by state employees under state law.
States design their own UI program within the federal framework. State statutes establish the benefits and state tax structure. States:
The Federal Government:
The program is governed by federal laws but administered by state employees under state law. The SSA and the Federal Unemployment Tax Act set forth broad coverage provisions, some benefit provisions, the federal tax base and rate, and administrative requirements. More information can be found at the following links:
UI is jointly financed through federal and state employer payroll taxes. Page 15 of the Unemployment Compensation Federal-State Overview has a graphic depicting the flow of funds.
Grants of funds are made to States for administration of their employment security laws if their unemployment insurance laws and their plans of operation for public employment offices meet required conditions of Federal law. (Section 303(a) of the Social Security Act; section 3304(a) of the Internal Revenue Code of 1986; sections 6, 7, and 8 of the Wagner-Peyser Act.)