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. Those who either quit their jobs or were fired for a just cause are not eligible for UI. In other words, someone separated from their job due to a lack of available work and at no fault of their own usually qualifies for unemployment benefits.

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.

The federal government established provisions designed to help unemployed Americans during the coronavirus pandemic. These additional benefits were put in place after 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.

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 were designed to help out-of-work Americans, including those who ordinarily would be ineligible to access unemployment funds.
  • Certain aspects of the unemployment programs first created in the CARES Act expired in July 2020.
  • The American Rescue Plan Act of 2021 extended COVID-19-related unemployment benefits that were expanded by the Consolidated Appropriations Act of 2021.

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 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 work. 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 biweekly 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. closed down, causing massive unemployment.

Lawmakers agreed on the passage of the CARES Act, landmark 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 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 weekly benefit on top of regular unemployment insurance (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. Unemployed individuals receive an additional $300 per week in benefits (replacing the $600 weekly benefit) beginning after Dec. 26, 2020.

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

Keep in mind that the FPUC benefit was not payable during the gap from July 31, 2020, to Dec. 26, 2020. In other words, the $600 in extra money added to unemployment benefits ended on July 31, 2020. This means the $300 didn'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 impacted by the coronavirus pandemic. Self-employed workers generally may not qualify for UI, and the PUA helps to provide them financial assistance.

The program was set to expire on Dec. 31, 2020, under the CARES Act but was extended until March 14, 2021, because of the Consolidated Appropriations Act. This gave unemployed American workers a total of 50 weeks of benefits.

The PUA was given new life, adding an additional 29 weeks to the program after the Biden administration passed the $1.9 stimulus package in March 2021. According to the American Rescue Plan Act, the PUA will expire 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 expiration date for this program was originally set to Dec. 31, 2020, but was extended to March 14, 2021. This increased the number of weeks from the original 13 weeks to 24 weeks, meaning 11 weeks were added.

The Biden administration added an additional 29 weeks, extending the benefits under the PEUC program to Sept. 6, 2021. This means unemployed individuals can claim up to 53 weeks of benefits under the American Rescue Plan Act.

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 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.