What Is Unemployment Insurance (UI)?

Unemployment insurance (UI), also called unemployment benefits, is a type of state-provided insurance that pays money to individuals on a weekly basis when they lose their job and meet certain eligibility requirements. Typically, those who have either quit their job or were fired for a just cause are not eligible for UI. In other words, someone was separated from their job due to the lack of available work and at no fault of their own can usually qualify for unemployment benefits.

Please note that due to the coronavirus pandemic, the Pandemic Emergency Unemployment Compensation (PEUC)) was created as an emergency program designed to help Americans who have lost their job due to the pandemic. Under the program workers who had exhausted their UI benefits could qualify for an additional 13 weeks of unemployment benefits if they meet certain criteria. However, an additional 11 weeks of benefits have been added to the original 13-week extension for a total of 24 weeks. Please note that the benefits under the PEUC program are slated to expire on March 14, 2021.

Each state administers its own unemployment insurance program, despite it being federal law. Workers must meet their state's work and wage requirements, including time worked. The benefits are primarily paid out by state governments and funded by specific payroll taxes collected for that purpose.

Key Takeaways

  • Benefits under unemployment insurance, also called unemployment compensation, typically last up to 26 weeks, depending on the state in which you live and have worked.
  • You do not qualify for unemployment insurance if you quit your job or are fired for cause.
  • The U.S. Department of Labor oversees the unemployment insurance program.
  • Three programs established by the 2020 CARES Act are designed to help out-of-work Americans, including those who ordinarily would be ineligible to access unemployment funds.

Understanding Unemployment Insurance (UI)

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 through the Federal Unemployment Tax Act (FUTA) along with state employment agencies.  

Each state has an unemployment insurance program, but all states must follow specific guidelines outlined by federal law. Federal law makes unemployment benefits relatively ubiquitous across state lines. The U.S. Department of Labor oversees the program and ensures compliance within each state.

Workers who meet specific eligibility requirements may receive up to 26 weeks of cash benefits a year. The weekly cash stipend is designed to replace half 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 that unemployment insurance recipients were paid for in cash.

If you're unemployed due to COVID-19, you may be eligible for one of the government relief programs such as the Pandemic Emergency Unemployment Compensation (PEUC) and Federal Pandemic Unemployment Compensation (FPUC). Please see below or review how to file for unemployment insurance.

Out of work persons who do not find employment after a 26-week period may be eligible for an extended benefits program. Extended benefits give unemployed workers an additional number of weeks of unemployment benefits. The availability of extended benefits will depend on a state's overall unemployment situation. If you have become unemployed due to the coronavirus pandemic, see below for details of the various programs.

Requirements for Unemployment Insurance (UI)

An unemployed person must meet two primary requirements to qualify for unemployment insurance benefits. 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 an unemployment insurance 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 for the processing and approval of a claim. 

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

$2 trillion

The amount of emergency stimulus in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, part of which is designed to aid people who are out of work.

Special Considerations

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

Lawmakers agreed on the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, landmark legislation that, in part, expands states' ability to provide UI to millions of workers affected by COVID-19, including people who aren't ordinarily eligible for unemployment benefits.

Three specific programs are designed to help Americans who have been out of work because of the coronavirus:  A fourth program was established through an Aug. 8, 2020, memorandum issued by President Trump in response to the expiration of the Federal Pandemic Employment Compensation program.   

Federal Pandemic Unemployment Compensation (FPUC)

The Federal Pandemic Unemployment Compensation (FPUC) provides an extra $300 weekly benefit on top of regular unemployment insurance (UI). The money will be paid each week of unemployment beginning after Dec. 26, 2020, and ending on or before March 14, 2021.

The original benefit had been 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 Continued Assistance Act—passed near the end of 2020. The FPUC was modified to provide an additional $300 per week in benefits—replacing the $600 weekly benefit. 

It's important to note that the FPUC benefit is not payable during the gap from July 31, 2020, to Dec. 26, 2020. In other words, the $600 in extra money that was added to unemployment benefits ended on July 31, 2020, and the $300 doesn't kick in until after Dec. 26, 2020.

Pandemic Unemployment Assistance (PUA)

The Pandemic Unemployment Assistance (PUA) expands UI eligibility to self-employed workers, freelancers, independent contractors, and part-time workers if they were impacted by the coronavirus pandemic in 2020 and 2021. Typically, self-employed workers might not qualify for UI, and the PUA helps to provide them financial assistance. The program had been set to expire on Dec. 31, 2020, but was extended and now expires on March 14, 2021.

Pandemic Emergency Unemployment Compensation (PEUC)

The Pandemic Emergency Unemployment Compensation (PEUC) extends UI benefits for an extra 24 weeks after regular unemployment compensation benefits have been exhausted. The PEUC is for workers that have been affected by the 2020 and 2021 novel coronavirus pandemic.

Under the CARES Act, the PEUC benefits were due to expire on Dec. 31, 2020, but the program was extended to March 14, 2021. The number of weeks that an individual can claim PEUC benefits was increased from the original 13 weeks to 24 weeks, meaning 11 weeks were added. There are additional benefits that some qualified individuals but it's important to check with your state to determine your eligibility for federal benefits.

Lost Wages Assistance (LWA) Program

The Lost Wages Assistance (LWA) program is a federal-state unemployment benefit that provides $300 to $400 in weekly compensation to eligible claimants. The Federal government, through the Disaster Relief Fund (DRF), provides $300 per claimant per week, and states are asked to provide the remaining $100. LWA came into existence in response to the expiration of FPUC on July 31, 2020.

If you have applied or are planning on applying for unemployment insurance under the Pandemic Unemployment Assistance (PUA) program, be sure to check with your individual state to determine when your last PUA payment will be issued.

Most states recommend that you make an unemployment claim online during the pandemic. To find out the rules in your state, check with your state's unemployment insurance program.