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  • Ever wondered how unemployment benefits work in Pennsylvania. If you look at your paycheck, you probably did not see any deduction toward unemployment insurance, so who pays for your benefits when you are unemployed? Many workers think this is paid through our federal and state taxes. However, state unemployment insurance benefits are not paid by either federal or state taxes. Federal unemployment benefit programs, such as the Emergency Unemployment Compensation program and the Extended Benefits are. So what about Pennsylvania’s state unemployment insurance benefits, who pays the bill?

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    Employers do, and in extreme cases employees contribute a little too. However, in most cases the entire cost of the unemployment insurance program in Pennsylvania is paid by employers.  All employers in Pennsylvania are required by Pennsylvania Unemployment Compensation law to withhold employee contributions toward unemployment insurance based on a trigger mechanism which only requires workers to pay unemployment insurance tax if the funds in the program drops to certain levels.

    Note that in principle the program is designed to be funded entirely by employers. The employee contribution amendment was designed to ensure the Unemployment Compensation fund never dropped to dangerously low levels due to unpredictable economic changes.

    How does the trigger mechanism work?

    According to the 1988 amendments to the Pennsylvania Unemployment Compensation law, the trigger mechanism is based on the fund levels of the program. These are calculated every July based on the average benefit costs of the last three fiscal years. As of 2008 to 2012 these are the trigger levels.

    If the fund has 150% or more of the average benefits cost for the last three years, employers will pay 0.0% of their wages. If 125% but less than 150%, 0.0%. If 110% but less than 125%, they will pay 0.02% of their wages, and so on, following the data below.

    95% but less than 110% = 0.03%

    75% but less than 95% =  0.06%

    50% but less than 75% = 0.08%

    Less than 50% = 0.08%

    Note that as the unemployment insurance withholding tax for employees rises so does the unemployment compensation tax for employers. For instance, according to the trigger mechanism, if the fund drops to 75 percent of the average benefits cost, employers must increase their contribution by 0.25 percent, if less than 50 percent, they must increase it by 0.45 percent  and if less than 50 percent, they must increase it by 0.65 percent.

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