Background The UI is a unique federal-state program, created by federal law and administered under state and federal laws by state employees. It is financed by unemployment program tax contributions from employers. When the UI program was established as a part of the Social Security Act of 1935, it offered for the first time, an economic line of defense against the effects of unemployment, assisting not only the individual but also the local community. Through a system of payments made directly to unemployed workers, UI ensures that at least some of life’s necessities, most notably food, shelter, and clothing, can be met while an active search for new work takes place. For the most part, UI benefits are spent in the claimant’s local community, thereby helping sustain the economic well-being of local businesses.
Tax Provisions: The UI program is financed by employers who pay unemployment taxes on up to $7,000 in wages paid to each worker. The actual tax rate varies for each employer, depending in part on the amount of UI benefits paid to former employees. Thus, the UI tax works much like any other insurance premium. An employer may earn a lower tax rate when fewer claims are made on the employer’s account by former employees. In all states, employers contribute to similar federal-state UI programs, and the tax rate and other provisions vary from state to state. Part of the employer’s tax goes directly to the federal government to pay for the administration of the system. The greater portion goes into a special UI Trust Fund from which benefit payments are made to the workers who are unemployed.
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