Unemployment insurance pays cash benefits to workers who have lost their jobs, temporarily replacing a portion of their earnings. Beneficiaries must be actively seeking new jobs. Unlike other safety net programs, UI is a partnership between the federal government and the states and is completely paid for by employer taxes. Emergency benefits, however, which are targeted to the long-term unemployed during recessions, are federally funded.
States, which administer the UI programs, determine most provisions related to program financing, state taxes on employers, and benefit levels and duration—all within federal guidelines. The federal government sets requirements for the timeliness and accuracy of benefits.
Employers who lay off more workers, and therefore have higher benefit payouts, pay higher tax rates. Employer taxes are paid into a state trust fund maintained at the U.S. Treasury and used as needed. When trust funds are depleted, the states can borrow from the Treasury to continue making payments.