Unemployment Insurance: Eligibility & Benefits Explained

What Is Unemployment Insurance (UI)?

Unemployment insurance (UI) is a type of state-provided, federally guided insurance that pays money to individuals weekly when they lose their jobs and meet certain eligibility requirements.

Those who either voluntarily quit or were fired for just cause are usually not eligible for UI. Those who lose jobs due to lack of work and through no fault of their own typically qualify for unemployment benefits.

State governments primarily pay the benefits, which are funded by specific payroll taxes.

How State-Specific Unemployment Insurance Programs Work

The unemployment initiative is a joint program between individual state governments and the federal government. Unemployment insurance provides cash stipends to unemployed workers who actively seek employment. Compensation to eligible, unemployed workers is made through the Federal Unemployment Tax Act (FUTA) along with state employment agencies.

Every state runs its unemployment insurance program, but they must all follow federal guidelines. Federal law ensures unemployment benefits are consistent across states. The Department of Labor (DOL) oversees the program and ensures compliance within each state.

Qualified workers can receive benefits for up to 26 weeks annually. The weekly cash stipend is designed to replace a percentage of the employee's regular wage, on average.

States fund unemployment insurance using taxes levied on employers. The majority of employers will pay both federal and state unemployment FUTA tax. Companies that have 501(c)3 status do not pay FUTA tax.

Three states also require minimal employee contributions to the state unemployment fund. Reportable income includes freelance work or jobs for which unemployment insurance recipients were paid in cash.

Unemployed individuals who don’t find work after 26 weeks may qualify for extended benefits. Extended benefits give unemployed workers an additional number of weeks of unemployment benefits. The availability of extended benefits depends on the unemployment situation in each state.

The federal government established provisions designed to help unemployed Americans during the coronavirus pandemic. These additional benefits were put in place after former President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020.

They were extended after the passing of the Consolidated Appropriations Act of 2021 and were extended again when President Joe Biden signed the $1.9 trillion American Rescue Plan Act of 2021 on March 11, 2021. The additional benefits expired on Sept. 6, 2021.

Who Qualifies for Unemployment Insurance Benefits?

To qualify for unemployment benefits, a person must meet two main requirements. An unemployed individual must meet state-mandated thresholds for either earned wages or time worked in a stated base period. The state must also determine that the eligible person is unemployed through no fault of their own. A person may file a UI claim when fulfilling these two requirements.

Individuals file claims in the state where they worked. A participant may file claims by phone or on the state unemployment insurance agency's website. After the first application, it generally takes two to three weeks to process and approve a claim.

After approval of a claim, the participant must either file weekly or biweekly reports that test or confirm their employment situation. Reports must be submitted to remain eligible for benefit payments. Unemployed workers cannot refuse work during a week, and on each weekly or biweekly claim, they must report any income that they earned from freelance or consulting gigs.

How Unemployment Insurance Is Funded

Employers fund unemployment insurance through taxes like FUTA and state-specific taxes. FUTA taxes 6% of the first $7,000 of an employee's wages but offers a 5.4% credit for timely payment.

Some states fund unemployment by charging the previous employer's UI account or increasing future UI taxes for the employer. Because employees who quit voluntarily typically can't get UI, some employers may pressure workers to resign instead of firing them.

How Events Can Affect Unemployment Insurance

On March 11, 2020, the World Health Organization declared COVID-19, the illness caused by a novel coronavirus, to be a pandemic. States and businesses across the U.S. closed down, causing massive unemployment.

Lawmakers agreed on the passage of the CARES Act, a landmark piece of legislation that, in part, expanded states' ability to provide UI to millions of workers affected by COVID-19, including people who aren't ordinarily eligible for unemployment benefits. The bill was passed and signed into law in March 2020.

Three specific programs were designed to help Americans who were out of work because of the coronavirus. A fourth program was established through a memorandum issued by then-President Trump on August 8, 2020, in response to the expiration of the Federal Pandemic Unemployment Compensation program.

Federal Pandemic Unemployment Compensation (FPUC)

The Federal Pandemic Unemployment Compensation (FPUC) provided an extra weekly benefit on top of regular UI. The original benefit provided an additional $600 weekly under the CARES Act, but that benefit expired on July 31, 2020. The FPUC was modified and extended as part of the Consolidated Appropriations Act in December 2020.

Another extension of the FPUC was approved after then-President Joe Biden signed the $1.9 trillion American Rescue Plan Act of 2021 on March 11, 2021. Under the plan, FPUC benefits expired on Sept. 6, 2021.

Pandemic Unemployment Assistance (PUA)

The Pandemic Unemployment Assistance (PUA) expanded UI eligibility to self-employed workers, freelancers, independent contractors, and part-time workers impacted by the coronavirus pandemic. Self-employed workers generally may not qualify for UI, and the PUA provided them with financial assistance. As per the American Rescue Plan Act, the PUA expired on Sept. 6, 2021, after a total of 79 weeks.

Pandemic Emergency Unemployment Compensation (PEUC)

The Pandemic Emergency Unemployment Compensation (PEUC) extended UI benefits under the CARES Act after regular unemployment compensation benefits were exhausted. The PEUC program officially expired on Sept. 6, 2021.

The Lost Wages Assistance (LWA) Program

The Lost Wages Assistance (LWA) program was a federal-state unemployment benefit that provided $300 to $400 in weekly compensation to eligible claimants. LWA came into existence in response to the expiration of FPUC on July 31, 2020.

The Bottom Line

Unemployment Insurance (UI) is a critical support system that offers weekly benefits to individuals who lose their jobs through no fault of their own. These programs are administered at the state level but follow federal guidelines, ensuring consistency across state lines.

Funding for UI primarily comes from employer-paid payroll taxes, including the Federal Unemployment Tax Act (FUTA), with some states requiring minimal employee contributions. At times, benefits and coverage can be temporarily expanded, as seen with the CARES Act and the American Rescue Plan, which were passed in response to the COVID-19 pandemic.

To be eligible for UI benefits, you must meet state mandates regarding earned wages or time worked and losing a job without personal fault. The standard duration of benefits is up to 26 weeks, with the possibility of extensions during periods of high unemployment. Workers should actively seek new employment while receiving UI benefits and report any additional income to maintain eligibility.