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How to Insure Your Income: Unemployment Insurance

Another statutory benefit plan -- like workers' comp -- is state-administered unemployment insurance. However, like workers' comp and Social Security, this benefit doesn't provide a lot of money.

In most states, people who are laid off or terminated through no fault of their own can collect a portion of their salary (often 50 percent), usually for up to 26 weeks. The weekly benefit usually is capped at about $300. The benefits are taxable.

Example: Unemployed workers in New Jersey normally qualify for up to 26 weeks of benefits that pay roughly 60 percent of their wages, with a cap of $362 a week.

Unemployment insurance benefits are funded by a tax paid by most employers as a percentage of payroll. The rate varies with an employer's history of claims and other factors. In certain situations, some employers -- such as those with very small payrolls -- are exempt from the taxes.

Specifically, the unemployment tax has two parts: a Federal Unemployment Tax (FUTA) of 0.8 percent on the first $7,000 of each employee's wages, and state unemployment insurance taxes that average 0.9 percent of total wages.

The system has two main objectives: to provide temporary and partial wage replacement to recently unemployed workers and to help stabilize the economy during recessions. Unemployment benefits are paid by state agencies. The federal government loans -- and in some cases gives -- money to these agencies.

Example: In 1995, the Labor Department extended unemployment benefits to provide an extra 13 weeks of payments to workers who had lost their jobs. It did this by making more money available to state agencies.

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