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Scott, Christine

Whittaker, Julie M.

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Unemployment Compensation (UC) and the Unemployment Trust Fund (UTF): Funding UC Benefits

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Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS22077March 9, 2005Unemployment Compensation (UC) and  the Unemployment Trust Fund (UTF):Funding UC BenefitsChristine Scott and Julie M. WhittakerDomestic Social Policy DivisionSummaryThis report provides a summary of how the unemployment compensation (UC)/unemployment insurance (UI) system funds UC benefits through the UnemploymentTrust Fund (UTF).  The federal UTF in the U.S. Treasury includes among its 59accounts:  the Employment Security Administration Account (ESAA), the ExtendedUnemployment Compensation Account (EUCA), and the Federal UnemploymentAccount (FUA), 53 state accounts, the Federal Employees Compensation Account(FECA), and two accounts related to the Railroad Retirement Board.  Federalunemployment taxes are placed in the ESAA; each state’s unemployment taxes areplaced in the state’s unemployment account.  Federal taxes pay for administration grantsto the states and half of extended UC benefits.  State unemployment taxes pay forregular UC benefits and half of extended UC benefits.  This report will be updated aslegislative activities warrant.The Unemployment Compensation (UC) ProgramUnemployment Compensation (UC) is a joint federal-state program financed byfederal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxesunder the State Unemployment Tax Acts (SUTA).  The underlying framework of the UCsystem is contained in the Social Security Act (SSA).  Title III of the SSA authorizesgrants to states for the administration of state UC laws; Title IV authorizes the variouscomponents of the federal Unemployment Trust Fund (UTF); and, Title XII authorizesadvances or loans to insolvent state UC programs.The Unemployment Trust FundAmong its 59 accounts, the federal UTF in the U.S. Treasury includes theEmployment Security Administration Account (ESAA), the Extended UnemploymentCRS-21 The FUA is an account from which advances are made to depleted state trust fund accounts toensure that UC benefit obligations are met.2 The District of Columbia, Puerto Rico, and the Virgin Islands are considered to be states in UCmatters.3 For the purposes of this report, the Railroad funds will be ignored.Compensation Account (EUCA), and the Federal Unemployment Account1 (FUA), 53state accounts,2 the Federal Employees Compensation Account (FECA), and two accountsrelated to the Railroad Retirement Board.3  Federal unemployment taxes are placed in theESAA; each state’s unemployment taxes are placed in the state’s unemployment account.Federal taxes pay for UC administration grants to the states and half of extended UCbenefits.  State taxes pay for regular UC benefits and half of extended UC benefits.While the UTF contains 59 separate accounts (often referred to as book accounts)in order to attribute and distribute the monies appropriately, the UTF is maintained andinvested as a single fund.  Thus, revenues to the fund and distributions from the fund arelinked to the book accounts and the source of the revenues.  The UTF maintains a balanceto carry over surplus spending authority to subsequent years.  The balance representsreserve spending authority available in addition to the spending authority  provided by theautomatic appropriation of current tax receipts.  This reserve spending authority is usedduring recessions when UC outlays exceed UTF tax receipts; that is, when currentspending exceeds current receipts.  Like many of the UTF’s other transactions, thebalance is effectively a bookkeeping entry.The Unemployment Trust Fund and the Federal Budget.  All UC taxreceipts and outlays for benefits and administration flow through the Treasury, and thusaffect federal revenue, outlays, and the overall financial position (deficit or surplus) of thefederal government.  The UTF accounts for all UC financial transactions.  This accountingdevice is used to accumulate legal spending authority that is available automatically whenneeded.  However, like other federal trust funds, the UTF does not contain financialresources.  The required cash the federal government needs to pay benefits oradministrative costs must be drawn from either current taxation or borrowing.  Therevenue and the expenditures of the UC system are counted in the federal budget.Federal laws require that excess UC funds be “invested” in federal governmentsecurities.  However, because the UTF is a federal account, its holdings of federalsecurities are simply obligations from the federal government to itself.  These obligationsrepresent a budgetary resource to the UC program, not a financial resource to the federalgovernment.  Because the federal government is holding its own securities, no cash israised when these securities are liquidated.  The UTF’s federal securities must be backedby cash raised through taxation or additional public borrowing.Other things being equal, a UTF surplus reduces the federal deficit, lowering theamount the federal government must borrow from the public.  Conversely, a UTF deficitincreases the overall federal budget deficit and increases federal borrowing needs.Unemployment Trust Fund Revenues and Distributions.  The UTFreceives revenues from three primary sources: (1) state unemployment taxes onCRS-34 This differs from funds from the taxation of Social Security benefits which help support theSocial Security and Medicare programs.Unemployment Trust FundRevenues  State Unemployment Taxes.Employers required to pay state unemploymenttaxes may remit their state unemployment taxesto states on a monthly, quarterly, annual oranother basis as determined by state laws andregulations.  States in turn, then remit thecollected taxes to the UTF, where the funds areplaced in the appropriate state unemploymentaccount.Federal Unemployment Taxes.Employers may also be required to pay federalemployment taxes on a quarterly basis.  Ifhowever, the estimated quarterly federal tax isless than $500, an employer may roll the liabilityover to the next quarter until the liability is $500or more.  When the liability is $500 or more, theemployer must pay the federal unemploymenttaxes through an electronic funds transfer or bydepositing the tax payment with an approvedfinancial institution.  An annual tax returnreconciles the quarterly deposits to the actual taxliability.  The Employment SecurityAdministration Account (ESAA) receives thefederal unemployment taxes.U.S. Government Agency Transfers.Each federal agency is responsible forunemployment benefits paid on the agency’sbehalf.  Each agency must budget for theunemployment benefits paid and reimburse theUTF for unemployment compensation paid on itsbehalf by states.  The funds are placed in theFederal Employees’ Compensation Account(FECA), which is a budgeted program within theDepartment of Labor.employers; (2) federal unemployment taxes on employers; and (3) U.S. governmentagency transfers.  While UC benefits are taxable and are fully subject to the federalincome tax, those revenues do not support the UC system.4  These three types of revenuesare depicted at the top of Figure 1.State Unemployment Tax Revenues Are Placed into the StateUnemployment Accounts Within the Unemployment Trust Fund.  States areauthorized to use these funds to pay UC benefits.  State unemployment account funds thatare attributable to state unemployment taxes may only be used for unemployment benefitsand the state’s portion of extended unemployment benefits.  Administrative costs arefunded through distributions from the ESAA to the state unemployment accounts.At the end of FY2004, states wereestimated to have collected $32.73 billionwhile expending $36.85 billion in regularUC benefits and $0.08 billion for theirshare of extended benefits.  State UTFrevenue exceeded expenditure fromFY1995 to FY2000, but expendituressignificantly exceeded trust fund revenue inFY2001-FY2004Federal Unemployment TaxesAre Placed into the ESAA.  Each fiscalyear, funds are appropriated through thefederal budget process to makedistributions from the ESAA for the states’costs of administering their unemploymentcompensation programs, and for the federalcosts of administration. The Secretary ofLabor determines (certifies) the amount ofthe administrative payments, and permitsthe Secretary of the Treasury to make thepayments to the states.  The Secretary ofLabor in certifying a state for paymenttakes into account that (1) the state’s UCprograms contain specific provisionsrelated to the payment of monies from thestate unemployment system, (2) the stateagency’s specific responsibilities inadministering the UC program and UCbenefits, and (3) the rights andresponsibilities of the UC benefitrecipients.CRS-45 For a description of the TEUC program see CRS Report 95-742, Unemployment Benefits:Legislative Issues in the 108th Congress, by Julie M. Whittaker.6 The Balanced Budget Act of 1997, P.L. 105-33, increased the statutory ceiling on the FUA from0.25% to 0.5% of covered wages, effective Oct. 1, 2001.  Previously, the UnemploymentCompensation Amendments of 1992, P.L. 102-318, had lowered the FUA from 0.625% to 0.25%and increased the ceiling for EUCA from 0.375% to 0.5%.  The Omnibus Budget ReconciliationAct of 1987, P.L. 100-203, had raised the EUCA ceiling from 0.125% to .375% and increasedthe FUA ceiling from 0.125% to 0.625%.At the End of Each Month, the ESAA Distributes to the EUCA anAmount Equal to 20% of the Net Monthly Activity.  Net monthly activity isrevenues into the ESAA less distributions for refunds of federal unemployment taxes andadditional federal unemployment taxes attributable to a reduced credit for state taxes.  Bythe end of FY2004, the federal accounts had collected $6.59 billion; the ESAA held $5.40billion while $1.19 billion was transferred to the EUCA.  Thus, at the end of FY2004, theESSA balance was $3.34 billion.  Since the ceiling for the ESSA was $1.53 billion, theexcess $1.81 billion in the ESSA was transferred to the EUCA.At the end of FY2004, the ESAA had distributed $3.88 billion to the states foradministrative costs and $4.12 billion for the Temporary Extended UnemploymentCompensation (TEUC) program.5If states have an ongoing extended unemployment benefits program, distributionsare made from the EUCA to cover the federal portion (50%) of extended unemploymentbenefits.  At the end of the fiscal year, and after any distribution from the ESAA, thebalance in the EUCA is determined.  The EUCA balance has a limitation — themaximum of $750 million or 0.5% of wages covered by state unemploymentcompensation laws.6  If the balance in the EUCA exceeds the limitation, the excess isdistributed to the Federal Unemployment Account (FUA).  At the end of FY2004 $0.05billion was expended to pay for the federal share of extended UC benefits.  At the end ofFY2004, the EUCA balance was $5.83 billion.  (The ceiling for the EUCA was $18.98billion; thus, there was no transfer of funds to the FUA.)In addition to any distribution from the EUCA, the FUA receives the additional taxespaid by employers when a reduced credit against federal taxes exists because the statehas an outstanding unpaid loan from FUA.  Funds are distributed from the FUA as loansto states, through the state unemployment accounts, to pay unemployment benefits.  (Seethe discussion below on loans to insolvent accounts for a more detailed explanation ofhow these loans operate.)  The FUA also has a balance limitation — the maximum of$550 million or 0.5% of the covered wages.  At the end of FY2004, the balance of FUAwas $11.91 billion which was lower than the $18.98 billion ceiling.Distributions are made to the state unemployment accounts from the FECA toreimburse the states for employment compensation paid to former federal employees.Each federal agency must reimburse the UTF for its share of federal workers’ UCbenefits.Other Unemployment Trust Fund Expenditures (Reed ActDistributions).  At the end of the fiscal year, there is a limitation on the balance in theCRS-57 For more information on Reed Act distributions from the Unemployment Trust Fund, see CRSReport RS22006, The Unemployment Trust Fund and Reed Act Distributions, by Julie Whittaker.ESAA — the account balance cannot exceed 40% of the  prior fiscal year’s appropriationby Congress.  If the balance in the ESAA exceeds this limitation, the excess is distributedto EUCA.  After the distribution, if the balance in the EUCA exceeds the limitation, theexcess is distributed to the FUA.  If after the distribution from the EUCA, the FUAbalance exceeds the limitation, the excess is distributed, as a Reed Act distribution, to thestates.7At the end of FY2004, the ESSA balance was $3.34 billion.  Because the ceiling forthe ESSA was $1.53 billion, the excess of  $1.81 billion was transferred to the EUCA.After this distribution, the EUCA balance was $5.83 billion.  Because the ceiling for theEUCA was $18.98 billion, there was no transfer of funds to the FUA.  The FUA balancewas $11.91 billion; since the ceiling for the FUA was $18.98 billion, there was no ReedAct distribution.Loans to Insolvent Accounts.  The Treasury can write checks for a stateunemployment account provided that legal spending authority exists for such spending.That is, the state unemployment account has a positive balance.  During some recessions,current taxes and reserve balances were insufficient to cover expenditures for UCbenefits.  Therefore, some state unemployment accounts required “loans.”  Like all othertransactions of the UTF, these are book account transactions that involve no exchange ofcash.  The loans are additional credits to a state unemployment account.  Subsequentrepayment of these loans reduces the credits in the state unemployment accounts.The state unemployment accounts can borrow from the FUA.  The principal of theloan is repaid by reducing federal tax credits for state unemployment taxes and placingthose increased revenues into the FUA.  The state cannot pay the interest on such loansusing the state unemployment account but must pay the interest through state generalrevenues or other measures.Federal law also authorizes appropriations if balances in the federal accounts areinsufficient to cover their expenditures.  For example, if the states’ borrowing needsexceed the available FUA balance, Congress is authorized to appropriate additionalspending authority to cover the amount needed.  Such appropriations require discretionaryaction by Congress and the President.CRS-6State Unemployment TaxesUnemploymentTrust FundFederal Unemployment Taxes Federal Agency ReimbursementsState Unemployment             Employment Security              Federal Employees’Accounts                       Administration Account                       Compensation AccountPayment to states for federal employees’ UC benefitsExtended Unemployment Compensation AccountPayment to states for extended UC benefits (federal share)Federal Unemployment AccountReed Act Distributions State Unemployment CompensationBenefitsLoans & repaymentsPayments for states’administrative costs20% of net monthly ESAA activityFunds in excess of 0.5% of covered wages in EUCA  at the end of FYFunds in excess of 0.5% of covered wages in  FUA at the end of FY(If EUCA is also at limit)Figure 1.  The Unemployment Trust Fund Source:  Figures prepared by The Congressional Research Service (CRS).

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Federal Publications Key Workplace Documents 
March 2005 
Unemployment Compensation (UC) and the Unemployment Trust 
Fund (UTF): Funding UC Benefits 
Christine Scott 
Congressional Research Service 
Julie M. Whittaker 
Congressional Research Service 
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Unemployment Compensation (UC) and the Unemployment Trust Fund (UTF): 
Funding UC Benefits 
Keywords 
Unemployment, compensation, UC, trust, UTF, fund, benefit, federal, ESSA, employment, administration, 
account, state, employer, tax 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/key_workplace/234 
Congressional Research Service ˜ The Library of Congress
CRS Report for Congress
Received through the CRS Web
Order Code RS22077
March 9, 2005
Unemployment Compensation (UC) and 
 the Unemployment Trust Fund (UTF):
Funding UC Benefits
Christine Scott and Julie M. Whittaker
Domestic Social Policy Division
Summary
This report provides a summary of how the unemployment compensation (UC)/
unemployment insurance (UI) system funds UC benefits through the Unemployment
Trust Fund (UTF).  The federal UTF in the U.S. Treasury includes among its 59
accounts:  the Employment Security Administration Account (ESAA), the Extended
Unemployment Compensation Account (EUCA), and the Federal Unemployment
Account (FUA), 53 state accounts, the Federal Employees Compensation Account
(FECA), and two accounts related to the Railroad Retirement Board.  Federal
unemployment taxes are placed in the ESAA; each state’s unemployment taxes are
placed in the state’s unemployment account.  Federal taxes pay for administration grants
to the states and half of extended UC benefits.  State unemployment taxes pay for
regular UC benefits and half of extended UC benefits.  This report will be updated as
legislative activities warrant.
The Unemployment Compensation (UC) Program
Unemployment Compensation (UC) is a joint federal-state program financed by
federal taxes under the Federal Unemployment Tax Act (FUTA) and by state payroll taxes
under the State Unemployment Tax Acts (SUTA).  The underlying framework of the UC
system is contained in the Social Security Act (SSA).  Title III of the SSA authorizes
grants to states for the administration of state UC laws; Title IV authorizes the various
components of the federal Unemployment Trust Fund (UTF); and, Title XII authorizes
advances or loans to insolvent state UC programs.
The Unemployment Trust Fund
Among its 59 accounts, the federal UTF in the U.S. Treasury includes the
Employment Security Administration Account (ESAA), the Extended Unemployment
CRS-2
1
 The FUA is an account from which advances are made to depleted state trust fund accounts to
ensure that UC benefit obligations are met.
2
 The District of Columbia, Puerto Rico, and the Virgin Islands are considered to be states in UC
matters.
3
 For the purposes of this report, the Railroad funds will be ignored.
Compensation Account (EUCA), and the Federal Unemployment Account1 (FUA), 53
state accounts,2 the Federal Employees Compensation Account (FECA), and two accounts
related to the Railroad Retirement Board.3  Federal unemployment taxes are placed in the
ESAA; each state’s unemployment taxes are placed in the state’s unemployment account.
Federal taxes pay for UC administration grants to the states and half of extended UC
benefits.  State taxes pay for regular UC benefits and half of extended UC benefits.
While the UTF contains 59 separate accounts (often referred to as book accounts)
in order to attribute and distribute the monies appropriately, the UTF is maintained and
invested as a single fund.  Thus, revenues to the fund and distributions from the fund are
linked to the book accounts and the source of the revenues.  The UTF maintains a balance
to carry over surplus spending authority to subsequent years.  The balance represents
reserve spending authority available in addition to the spending authority  provided by the
automatic appropriation of current tax receipts.  This reserve spending authority is used
during recessions when UC outlays exceed UTF tax receipts; that is, when current
spending exceeds current receipts.  Like many of the UTF’s other transactions, the
balance is effectively a bookkeeping entry.
The Unemployment Trust Fund and the Federal Budget.  All UC tax
receipts and outlays for benefits and administration flow through the Treasury, and thus
affect federal revenue, outlays, and the overall financial position (deficit or surplus) of the
federal government.  The UTF accounts for all UC financial transactions.  This accounting
device is used to accumulate legal spending authority that is available automatically when
needed.  However, like other federal trust funds, the UTF does not contain financial
resources.  The required cash the federal government needs to pay benefits or
administrative costs must be drawn from either current taxation or borrowing.  The
revenue and the expenditures of the UC system are counted in the federal budget.
Federal laws require that excess UC funds be “invested” in federal government
securities.  However, because the UTF is a federal account, its holdings of federal
securities are simply obligations from the federal government to itself.  These obligations
represent a budgetary resource to the UC program, not a financial resource to the federal
government.  Because the federal government is holding its own securities, no cash is
raised when these securities are liquidated.  The UTF’s federal securities must be backed
by cash raised through taxation or additional public borrowing.
Other things being equal, a UTF surplus reduces the federal deficit, lowering the
amount the federal government must borrow from the public.  Conversely, a UTF deficit
increases the overall federal budget deficit and increases federal borrowing needs.
Unemployment Trust Fund Revenues and Distributions.  The UTF
receives revenues from three primary sources: (1) state unemployment taxes on
CRS-3
4
 This differs from funds from the taxation of Social Security benefits which help support the
Social Security and Medicare programs.
Unemployment Trust Fund
Revenues  
State Unemployment Taxes.
Employers required to pay state unemployment
taxes may remit their state unemployment taxes
to states on a monthly, quarterly, annual or
another basis as determined by state laws and
regulations.  States in turn, then remit the
collected taxes to the UTF, where the funds are
placed in the appropriate state unemployment
account.
Federal Unemployment Taxes.
Employers may also be required to pay federal
employment taxes on a quarterly basis.  If
however, the estimated quarterly federal tax is
less than $500, an employer may roll the liability
over to the next quarter until the liability is $500
or more.  When the liability is $500 or more, the
employer must pay the federal unemployment
taxes through an electronic funds transfer or by
depositing the tax payment with an approved
financial institution.  An annual tax return
reconciles the quarterly deposits to the actual tax
liability.  The Employment Security
Administration Account (ESAA) receives the
federal unemployment taxes.
U.S. Government Agency Transfers.
Each federal agency is responsible for
unemployment benefits paid on the agency’s
behalf.  Each agency must budget for the
unemployment benefits paid and reimburse the
UTF for unemployment compensation paid on its
behalf by states.  The funds are placed in the
Federal Employees’ Compensation Account
(FECA), which is a budgeted program within the
Department of Labor.
employers; (2) federal unemployment taxes on employers; and (3) U.S. government
agency transfers.  While UC benefits are taxable and are fully subject to the federal
income tax, those revenues do not support the UC system.4  These three types of revenues
are depicted at the top of Figure 1.
State Unemployment Tax Revenues Are Placed into the State
Unemployment Accounts Within the Unemployment Trust Fund.  States are
authorized to use these funds to pay UC benefits.  State unemployment account funds that
are attributable to state unemployment taxes may only be used for unemployment benefits
and the state’s portion of extended unemployment benefits.  Administrative costs are
funded through distributions from the ESAA to the state unemployment accounts.
At the end of FY2004, states were
estimated to have collected $32.73 billion
while expending $36.85 billion in regular
UC benefits and $0.08 billion for their
share of extended benefits.  State UTF
revenue exceeded expenditure from
FY1995 to FY2000, but expenditures
significantly exceeded trust fund revenue in
FY2001-FY2004
Federal Unemployment Taxes
Are Placed into the ESAA.  Each fiscal
year, funds are appropriated through the
federal budget process to make
distributions from the ESAA for the states’
costs of administering their unemployment
compensation programs, and for the federal
costs of administration. The Secretary of
Labor determines (certifies) the amount of
the administrative payments, and permits
the Secretary of the Treasury to make the
payments to the states.  The Secretary of
Labor in certifying a state for payment
takes into account that (1) the state’s UC
programs contain specific provisions
related to the payment of monies from the
state unemployment system, (2) the state
agency’s specific responsibilities in
administering the UC program and UC
benefits, and (3) the rights and
responsibilities of the UC benefit
recipients.
CRS-4
5
 For a description of the TEUC program see CRS Report 95-742, Unemployment Benefits:
Legislative Issues in the 108th Congress, by Julie M. Whittaker.
6
 The Balanced Budget Act of 1997, P.L. 105-33, increased the statutory ceiling on the FUA from
0.25% to 0.5% of covered wages, effective Oct. 1, 2001.  Previously, the Unemployment
Compensation Amendments of 1992, P.L. 102-318, had lowered the FUA from 0.625% to 0.25%
and increased the ceiling for EUCA from 0.375% to 0.5%.  The Omnibus Budget Reconciliation
Act of 1987, P.L. 100-203, had raised the EUCA ceiling from 0.125% to .375% and increased
the FUA ceiling from 0.125% to 0.625%.
At the End of Each Month, the ESAA Distributes to the EUCA an
Amount Equal to 20% of the Net Monthly Activity.  Net monthly activity is
revenues into the ESAA less distributions for refunds of federal unemployment taxes and
additional federal unemployment taxes attributable to a reduced credit for state taxes.  By
the end of FY2004, the federal accounts had collected $6.59 billion; the ESAA held $5.40
billion while $1.19 billion was transferred to the EUCA.  Thus, at the end of FY2004, the
ESSA balance was $3.34 billion.  Since the ceiling for the ESSA was $1.53 billion, the
excess $1.81 billion in the ESSA was transferred to the EUCA.
At the end of FY2004, the ESAA had distributed $3.88 billion to the states for
administrative costs and $4.12 billion for the Temporary Extended Unemployment
Compensation (TEUC) program.5
If states have an ongoing extended unemployment benefits program, distributions
are made from the EUCA to cover the federal portion (50%) of extended unemployment
benefits.  At the end of the fiscal year, and after any distribution from the ESAA, the
balance in the EUCA is determined.  The EUCA balance has a limitation — the
maximum of $750 million or 0.5% of wages covered by state unemployment
compensation laws.6  If the balance in the EUCA exceeds the limitation, the excess is
distributed to the Federal Unemployment Account (FUA).  At the end of FY2004 $0.05
billion was expended to pay for the federal share of extended UC benefits.  At the end of
FY2004, the EUCA balance was $5.83 billion.  (The ceiling for the EUCA was $18.98
billion; thus, there was no transfer of funds to the FUA.)
In addition to any distribution from the EUCA, the FUA receives the additional taxes
paid by employers when a reduced credit against federal taxes exists because the state
has an outstanding unpaid loan from FUA.  Funds are distributed from the FUA as loans
to states, through the state unemployment accounts, to pay unemployment benefits.  (See
the discussion below on loans to insolvent accounts for a more detailed explanation of
how these loans operate.)  The FUA also has a balance limitation — the maximum of
$550 million or 0.5% of the covered wages.  At the end of FY2004, the balance of FUA
was $11.91 billion which was lower than the $18.98 billion ceiling.
Distributions are made to the state unemployment accounts from the FECA to
reimburse the states for employment compensation paid to former federal employees.
Each federal agency must reimburse the UTF for its share of federal workers’ UC
benefits.
Other Unemployment Trust Fund Expenditures (Reed Act
Distributions).  At the end of the fiscal year, there is a limitation on the balance in the
CRS-5
7
 For more information on Reed Act distributions from the Unemployment Trust Fund, see CRS
Report RS22006, The Unemployment Trust Fund and Reed Act Distributions, by Julie Whittaker.
ESAA — the account balance cannot exceed 40% of the  prior fiscal year’s appropriation
by Congress.  If the balance in the ESAA exceeds this limitation, the excess is distributed
to EUCA.  After the distribution, if the balance in the EUCA exceeds the limitation, the
excess is distributed to the FUA.  If after the distribution from the EUCA, the FUA
balance exceeds the limitation, the excess is distributed, as a Reed Act distribution, to the
states.7
At the end of FY2004, the ESSA balance was $3.34 billion.  Because the ceiling for
the ESSA was $1.53 billion, the excess of  $1.81 billion was transferred to the EUCA.
After this distribution, the EUCA balance was $5.83 billion.  Because the ceiling for the
EUCA was $18.98 billion, there was no transfer of funds to the FUA.  The FUA balance
was $11.91 billion; since the ceiling for the FUA was $18.98 billion, there was no Reed
Act distribution.
Loans to Insolvent Accounts.  The Treasury can write checks for a state
unemployment account provided that legal spending authority exists for such spending.
That is, the state unemployment account has a positive balance.  During some recessions,
current taxes and reserve balances were insufficient to cover expenditures for UC
benefits.  Therefore, some state unemployment accounts required “loans.”  Like all other
transactions of the UTF, these are book account transactions that involve no exchange of
cash.  The loans are additional credits to a state unemployment account.  Subsequent
repayment of these loans reduces the credits in the state unemployment accounts.
The state unemployment accounts can borrow from the FUA.  The principal of the
loan is repaid by reducing federal tax credits for state unemployment taxes and placing
those increased revenues into the FUA.  The state cannot pay the interest on such loans
using the state unemployment account but must pay the interest through state general
revenues or other measures.
Federal law also authorizes appropriations if balances in the federal accounts are
insufficient to cover their expenditures.  For example, if the states’ borrowing needs
exceed the available FUA balance, Congress is authorized to appropriate additional
spending authority to cover the amount needed.  Such appropriations require discretionary
action by Congress and the President.
CRS-6
State Unemployment Taxes
Unemployment
Trust Fund
Federal Unemployment Taxes Federal Agency Reimbursements
State Unemployment             Employment Security              Federal Employees’
Accounts                       Administration Account                       Compensation Account
Paym
ent t
o sta
tes fo
r fede
ral 
empl
oyee
s’ UC
 bene
fits
Extended Unemployment Compensation 
Account
Paym
ent
 to
 states
 for
 extended
 UC
 benefits
 
(federal
 share)
Federal Unemployment Account
Reed Act 
Distributions 
State Unemployment 
Compensation
Benefits
Loans
 &
 repaym
ents
Pay
me
nts
 
for 
sta
tes
’
adm
inis
trat
ive 
co
sts
20%
 of
 n
et
 m
o
nthly
 ESA
A
 activity
Funds in excess of 0.5% of 
covered wages in EUCA  at the 
end of FY
Fun
ds in
 
exc
ess
 
of 0
.
5% 
of c
ove
red 
wa
ges 
in  F
UA
 
at t
he e
nd o
f FY
(If E
UCA
 
is al
so 
at li
mit)
Figure 1.  The Unemployment Trust Fund
 Source:  Figures prepared by The Congressional Research Service (CRS).


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Unemployment Compensation (UC) and the Unemployment Trust Fund (UTF): Funding UC Benefits

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