As the Congressional approval of appropriations for Fiscal Year 2026 concludes and the consideration of the Fiscal Year 2027 Federal Budget begins, it is clear that the amount to fund the unemployment insurance system is insufficient to address the system upgrades and integrity measures needed to avoid the level of fraud that was experienced during the COVID emergency. Now is the time to address these needs.
Despite bi-partisan recognition that the system needs to be updated before the next recession, additional funding for modernization and integrity reforms has not been provided. The method used to determine UI administrative funding has not been updated in decades and continues to rely primarily on claims workload without recognizing the need to fund the costs of developing and implementing the systems required for proper administration.
The lack of sufficient federal funding for UI administration has been an issue for many years, as federal funding has been cut after recessions. Some state systems developed in the 1970s remain to be updated. Many states have elected to supplement federal funding to address systems and administrative funding needs, and some states have enacted state surcharges to be paid by employers on top of the FUTA taxes that they are already paid for the same purpose.
The lack of funding is NOT due to the lack of revenue from Federal Unemployment Tax (FUTA) payroll taxes paid by employers. There is no need for a FUTA tax increase!
The Federal Unemployment Tax (FUTA) is paid by employers for the purpose of funding the UI system, and FUTA revenue has exceeded the amounts appropriated for the system for decades.
Legislation (HR 1156) that would have provided an additional five years to prosecute criminal fraud was passed by the US House of Representatives BILLS-119hr1156pcs.pdf and legislation was introduced in both houses to authorize states to finance administration through increased overpayment recovery, but final enactment of integrity financing and authorization measures have been stalled.
A recent article by UWC Member Matt Weidinger at AEI provides a detailed history of the FUTA tax, proposals to revise the determination of federal funding, and legislation that would devolve the determination of administrative funding to states that are responsible for administration. See Funding the Administration of Unemployment Benefits: Overview and Reforms to Improve Efficiency and Program Integrity | American Enterprise Institute – AEI
UWC supports legislation to increase funding for system integrity and modernization and urges Congress to enact legislation to address these issues.
