TITLE II—FEDERAL UNEMPLOY-
MENT BENEFIT SYSTEM RE-
FORMS 
SEC. 201. INCREASE AND DECREASE IN EARNINGS CRED-
ITED TO STATE ACCOUNTS WHEN STATES 
MEET OR FAIL TO MEET FUNDING GOALS. 
(a) IN GENERAL.—Section 904 of the Social Security 
Act (42 U.S.C. 1104) is amended by adding at the end 
the following new subsection: 
‘‘Increase and Decrease in Amount of Earnings Allocated 
to State Accounts When States Meet or Fail to Meet 
Funding Goals 
‘‘(h)(1) If the average daily balance in a State ac-
count in the Unemployment Trust Fund for any calendar 
quarter exceeds the funding goal of such State, the 
amount otherwise creditable to such account under sub-
section (e) for such quarter shall be increased by the inter-
est premium on such excess. If the average daily balance 
in such a State account for any calendar quarter is less 
than the funding goal of such State, the amount otherwise 
creditable to such account under subsection (e) for such 
quarter shall be decreased by the interest penalty. 
‘‘(2) Paragraph (1) shall not apply with respect to 
any interest premium or interest penalty to the extent that 
such application would result in an increase or decrease
of more than $2,500,000 in the amount creditable to any 
State account for any calendar quarter. 
‘‘(3) For purposes of this subsection, the term ‘inter-
est premium’ means, for any calendar quarter— 
‘‘(A) with respect to the State with the largest 
percentage value of excess of the average daily bal-
ance in the State account in the Unemployment 
Trust Fund over the funding goal of such State, 
one-half of one percent of the amount of such ex-
cess, and 
‘‘(B) with respect to each other State, the prod-
uct of— 
‘‘(i) the amount of the excess of the aver-
age daily balance in the State account in the 
Unemployment Trust Fund over the funding 
goal of such State, and 
‘‘(ii) the percentage which bears the same 
ratio to one-half of one percent as— 
‘‘(I) the percentage value of such ex-
cess, bears to 
‘‘(II) the percentage value of the ex-
cess of the State referred to in subpara-
graph (A). 
The Secretary shall make appropriate adjustments in the 
interest premium for any calendar quarter if the aggregate
interest premiums payable for such quarter exceed the ag-
gregate interest penalties for such quarter. 
‘‘(4) For purposes of this subsection, the term ‘inter-
est penalty’ means, for any calendar quarter— 
‘‘(A) with respect to the State with the largest 
percentage value of excess of the funding goal of 
such State over the average daily balance in the 
State account in the Unemployment Trust Fund, 
one-half of one percent of the amount otherwise 
creditable to such account under subsection (e), and 
‘‘(B) with respect to each other State, the prod-
uct of— 
‘‘(i) the amount otherwise creditable to 
such account under subsection (e), and 
‘‘(ii) the percentage which bears the same 
ratio to one-half of one percent as— 
‘‘(I) the percentage value of the excess 
of the funding goal of the State over such 
average daily balance of such State, bears 
to 
‘‘(II) the percentage value of such ex-
cess of the State referred to in subpara-
graph (A). 
‘‘(5) For purposes of this subsection, the term ‘fund-
ing goal’ means, for any State for any calendar quarter,
the average of the unemployment insurance benefits paid 
by such State during each of the 3 years, in the 20-year 
period ending with the calendar year containing such cal-
endar quarter, during which the State paid the greatest 
amount of unemployment benefits. 
‘‘(6) For purposes of this subsection, the term ‘per-
centage value’ means— 
‘‘(A) with respect to any excess of the average 
daily balance in a State account in the Unemploy-
ment Trust Fund over the funding goal of such 
State, the percentage which such excess bears to 
such funding goal, and 
‘‘(B) with respect to any excess of such funding 
goal over such average daily balance, the percentage 
which such excess bears to such funding goal.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) 
AMOUNTS
CREDITED
TO
STATE
AC-
COUNTS.—Subsection (e) of section 904 of the So-
cial Security Act (42 U.S.C. 1104(e)) is amended in 
the first sentence by inserting ‘‘(as modified by sub-
section (h))’’ after ‘‘a proportionate part’’. 
(2) INTEREST RATE ON REPAYMENT OF AD-
VANCES DETERMINED WITHOUT REGARD TO INTER-
EST PREMIUMS OR PENALTIES ON AMOUNTS CRED-
ITED TO STATE ACCOUNTS.—Subparagraph (A) of
section 
1202(b)(4) 
of 
such 
Act 
(42 
U.S.C. 
1322(b)(4)) is amended by inserting ‘‘(determined 
without regard to section 904(h))’’ after ‘‘preceding 
calendar year’’. 
(c) REPORT.—Not later than 6 months after the date 
of the enactment of this Act, the Secretary of Labor shall 
submit to the Congress a report recommending sources of 
funding for the crediting of interest premiums under sub-
section (h) of section 904 of the Social Security Act (42 
U.S.C. 1104), as added by this section, in the event that 
the imposition of interest penalties under such subsection 
is insufficient to fund such premiums. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
December 31, 2007. 
SEC. 202. INTEREST-FREE ADVANCES TO STATE ACCOUNTS 
IN 
UNEMPLOYMENT 
TRUST 
FUND 
RE-
STRICTED TO STATES WHICH MEET FUNDING 
GOALS. 
(a) IN GENERAL.—Subparagraph (C) of section 
1202(b)(2) of the Social Security Act (42 U.S.C. 
1322(b)(2)) is amended to read as follows: 
‘‘(C) the average daily balance in the account of 
such State in the Unemployment Trust Fund for 
each of 4 of the 5 calendar quarters preceding the
calendar quarter in which such advances were made 
exceeds the funding goal of such State (as defined 
in section 904(h)).’’ 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to calendar years beginning 
after the date of the enactment of this Act. 
TITLE 
III—AMENDMENTS 
TO 
THE 
INTERNAL 
REVENUE 
CODE OF 1986 
SECTION 301. 2-YEAR SUSPENSION OF TAX ON UNEMPLOY-
MENT COMPENSATION. 
(a) IN GENERAL.—Section 85 of the Internal Rev-
enue Code of 1986 (relating to unemployment compensa-
tion) is amended by adding at the end the following new 
subsection: 
‘‘(c) MORATORIUM.—This section shall not apply to 
taxable years beginning in 2004 or 2005.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 302. STATE COLLECTION OF FEDERAL UNEMPLOY-
MENT TAX. 
(a) IN GENERAL.—Chapter 23 of the Internal Rev-
enue Code of 1986 (relating to Federal Unemployment 
Tax Act) is amended by redesignating section 3311 as sec-
tion 3312 and by inserting after section 3310 the following 
new section: 
‘‘SEC. 3311. STATE COLLECTION OF TAX. 
‘‘(a) IN GENERAL.—At the election of any State 
which is certified as provided in section 3304, each em-
ployer who pays contributions, with respect to any wages, 
into an unemployment fund maintained under the unem-
ployment compensation law of such State shall submit the 
tax imposed by this chapter with respect to such wages 
to such State rather than to the Secretary. 
‘‘(b) COORDINATION WITH DEPOSITARY REQUIRE-
MENTS.—Payment under subsection (a) of the tax im-
posed by this chapter with respect to any wages shall be 
treated as timely paid for purposes of this title if paid 
by the employer to the State at the same time as a timely 
paid payment, with respect to such wages, of contributions 
into an unemployment fund maintained under the unem-
ployment compensation law of such State. 
‘‘(c) EXCEPTION
FOR
PAYMENTS
NOT
TIMELY 
PAID.—Subsection (a) shall not apply to any payment of 
the tax imposed by this chapter which is not paid by an 
employer on or before the last date on which such payment 
would be treated as timely paid under subsection (b). 
‘‘(d) 
FEDERAL
TAX
TRANSFERRED
TO
SEC-
RETARY.—Each State making an election under sub-
section (a) shall transmit to the Secretary, at the time 
and in the manner prescribed by the Secretary, the 
amount of the tax imposed by this chapter which is sub-
mitted to such State under subsection (a) and a copy of 
the State tax return of each employer making such a sub-
mission. The Secretary may, after consultation with such 
organizations or other entities as the Secretary considers 
appropriate, prescribe regulations requiring that addi-
tional information be submitted by such State with respect 
to the amount of such tax payable by such employer.’’ 
(b) CLERICAL AMENDMENT.—The table of sections 
for chapter 23 of such Code is amended by striking the 
item relating to section 3311 and inserting the following 
new items: 
‘‘Sec. 3311. State collection of tax. 
‘‘Sec. 3312. Short title.’’ 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to calendar years beginning after 
December 31, 2004. 
SEC. 303. REQUIRED DISTRIBUTION OF STATE-SPECIFIC IN-
FORMATION PACKETS. 
(a) IN GENERAL.—Subsection (a) of section 3304 of 
the Internal Revenue Code of 1986 (relating to approval 
of State laws) is amended by striking ‘‘and’’ at the end 
of paragraph (18), by striking the period at the end of
paragraph (19) and inserting ‘‘; and’’, and by adding at 
the end the following new paragraph: 
‘‘(20) the State will distribute to unemployed 
individuals State-specific information packets ex-
plaining unemployment insurance eligibility condi-
tions.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply to certifications of States for 
2005, except that section 3304(a)(20) of such Code, as 
added by subsection (a), shall not be a requirement for 
the State law of any State prior to July 1, 2006, if the 
legislature of such State does not meet in a regular session 
which closes during the calendar year 2005. 
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