What Happened?

If you have ever paid payroll taxes or counted on jobless benefits, the money states owe the federal government affects you. States are projected to owe $19.77 billion in outstanding federal loans in fiscal 2026. The Congressional Research Service (CRS), Congress's research arm, mapped out projected income, spending, and year-end balances for the Unemployment Trust Fund (UTF), the federal-state system that collects payroll taxes and pays jobless benefits. ​

All fiscal 2026 figures are projections drawn from the Department of Labor's UI Program Outlook: President's Budget 2027, not final results.

The UTF draws revenue from two payroll taxes: the Federal Unemployment Tax Act (FUTA), projected at $7.30 billion in fiscal 2026, and state payroll taxes under the State Unemployment Tax Acts (SUTA), projected at $44.59 billion. Together, those two sources are projected to bring in $51.89 billion this fiscal year.

Why Does it Matter to Me?

States owe the federal government $19.77 billion in unemployment trust fund loans, about 23 cents of every dollar sitting in state trust fund accounts projected at $84.69 billion for fiscal 2026. When states borrow to keep benefits flowing and cannot repay quickly, federal law allows the government to raise the payroll tax on employers to recover the money, which can ripple into hiring decisions.

A report by The Century Foundation found that most states cut unemployment benefits in response to trust fund insolvency between 2010 and 2015. Separately, the Tax Foundation reported in December 2020 that states would ultimately need to raise UI taxes to repay federal advances and replenish trust funds.

Under the Consolidated Appropriations Act, 2026, Congress appropriated $3.23 billion for state administrative grants and $18 million for federal UI administration.

Both Sides, Now

The CRS report notes that Congress has expressed interest in reconsidering how state UI administration funding is collected and distributed.

Supporters of the current structure point to its built-in flexibility: states can draw on federal loans to keep benefits paid during downturns without waiting for Congress to act. Opponents argue that weak trust fund finances shift costs onto employers and workers through higher UI taxes or reduced benefits, and The Century Foundation found that most states cut benefits in response to insolvency between 2010 and 2015, but whether the fiscal 2026 projections will produce the same outcome is not established.

The report also flags a contingent threshold: if average weekly insured unemployment rises above a statutory level, the Department of Labor notifies the Office of Management and Budget; if it does not, Congress must pass supplemental spending or states must cover costs themselves.

What Happens Next?

A Department of Labor final rule on unemployment compensation data availability was published Sept. 16 and takes effect Nov. 16. The Federal Unemployment Account's projected end-of-year balance of $13.94 billion sits $34.90 billion, or about 71 percent, below the $48.84 billion ceiling required to trigger a Reed Act distribution to states.

Congress holds the power to reshape how the UTF collects and distributes money, and the CRS report was prepared specifically because lawmakers are weighing whether to do so. Will Congress act before more states are forced to choose between cutting benefits or raising taxes on employers?

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AllCiv makes it easy to stay politically informed and involved.

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