A recession would quicky sink Illinois’ unemployment insurance fund

State unemployment insurance could withstand less than three months in an economic downturn. The taxes that support the fund are among the highest in the country.

Illinois employers face one of the highest tax burdens in the country for unemployment insurance, yet the state’s trust fund to pay benefits remains financially fragile.

That means even those burdensome taxes aren’t keeping the fund in good shape. Tying the duration of unemployment benefits to the economy could help.

Unemployment insurance trust funds are recommended to withstand at least one full year of a recession-level spike in claims. Illinois’ has enough for just under three months, or one quarter of a year.

At the start of 2025, Illinois’ fund had a balance of $1.57 billion, compared to the federal solvency benchmark for Illinois of around $6.5 billion. The state’s fund hasn’t been at the recommended solvency level since 1974.

In Illinois, eligible workers typically can receive up to 26 weeks of benefits, with weekly payments replacing about 47% of their wages up to a capped maximum that varies based on dependents. To qualify, people must have lost their job through no fault of their own, earned enough during a set base period, and be able to work, available for work and actively looking for a job.

Federal law requires benefits to continue even if the trust fund is exhausted. In such a case, Illinois might need to borrow from the federal government — loans that come with interest and would further strain a state already facing myriad fiscal troubles.

The fund is in poor shape even though Illinois ranked ninth-worst in the nation for unemployment insurance taxes, according to the Tax Foundation.

Those taxes fund unemployment benefits. The taxes, based on wages and an employer’s layoff history, can range from 0.2% to 6.4% in Illinois, according to the Tax Foundation.

The wide range reflects an experience-rating system in which employers that historically lay off more workers pay higher tax rates and those with more stable workforces pay less. These rates apply only to a capped portion of each employee’s wages, not total payroll. Rates can be adjusted based on the overall condition of the state’s unemployment trust fund, meaning employers might pay higher taxes when the fund is strained.

Because the structure does not adjust to changing economic conditions, benefits can remain generous when jobs are plentiful. That increases costs for employers without strengthening job security for workers and puts additional pressure on an already financially weak system.

One solution is to tie unemployment insurance benefits to the state of the economy. As of February 2025, 11 states tie unemployment benefits to the economy in some way. Several of those states are at or above the minimum recommended solvency level, such as Alabama, Idaho, North Carolina and Kansas.

Senate Bill 2887 would implement a similar system in Illinois. It creates a sliding scale for how long a worker can receive benefits based on the state’s unemployment rate. Under the proposal, when unemployment is lower, workers would be eligible for fewer weeks of benefits. They would qualify for more weeks of benefits when unemployment is higher.

The duration of benefits would move on a sliding scale as the unemployment rate decreases or increases, ensuring additional support is available to workers during difficult economic periods.

When jobs are abundant, those who are unemployed generally find can find work more quickly, reducing the need for longer benefit periods. That also helps reduce unnecessary payouts.

During recessions, when jobs become harder to find, longer benefit periods allow more time to look for work while maintaining financial stability for families.

Linking unemployment benefits to economic conditions would help stabilize the state’s underfunded unemployment insurance trust fund. Doing so also would reduce the likelihood of tax increases on employers to refill the fund after recessions.

Illinois’ unemployment insurance system should support workers who lose their jobs while remaining financially sustainable. A system that adjusts benefits based on economic conditions would help achieve that balance and move the state toward a more stable and responsive safety net.