|
What is Unemployment Insurance (UI)
Tax |
|
Unemployment Insurance pays
benefits when an employee is terminated under certain
circumstances.
Unemployment Insurance (UI) is a federal and state program
jointly financed through federal and state employer
payroll taxes (federal/state UI tax). These
are forms of Payroll Taxes.
The
Federal program is called FUTA (Federal
Unemployment Tax Act). Federal
Funds covers the costs of
administering the Unemployment Insurance and Job Service programs in all
states. In addition, FUTA pays one-half of the cost of
extended unemployment benefits (during periods of high
unemployment) and provides for a fund from which states
may borrow, if necessary, to pay benefits.
The State
program is called SUTA (State Unemployment Tax Act).
State funds are used to pay the actual benefits to laid
off employees.
|
|
Who is required to pay Unemployment
Insurance |
|
Generally, employers must pay both state and
federal unemployment taxes if: (1) they pay wages to
employees totaling $1,500, or more, in any quarter of a
calendar year; or, (2) they had at least one employee
during any day of a week during 20 weeks in a calendar
year, regardless of whether or not the weeks were
consecutive.
In three (3)
states employees are also required to contribute to the
Unemployment Insurance Fund. These states are
Alaska, New Jersey and Pennsylvania. Employers in
these states are required to withhold payment from their
employees and make the payment to the state.
Government entities and non-profit organizations are not
liable under FUTA but are covered by the states. |
|
What are the Federal UI Tax Rates |
|
The
FUTA (Federal Unemployment Tax Act) tax rate is 6.2% of
taxable wages. The taxable wage base is the first $7,000
paid in wages to each employee during a calendar year.
Employers who pay the state unemployment tax, on a
timely basis, will receive an offset credit of up to
5.4% regardless of the rate of tax they pay the state.
Therefore, the net federal tax rate is generally 0.8%
(6.2% - 5.4%). This would equate to a maximum of $56.00
per employee, per year (.008 X $7,000. = $56.00) in
federal tax. |
|
What are the States UI Tax Rates |
|
The UI tax rate varies
from state to state. States have a UI tax rate for
new employers and experienced employers.
A new employer could
be a small business that just started hiring, a company
that takes over another business in the state or an
out-of-state business that started operating in the
state.
New Employers pay a
fixed UI rate for 1-3 years. Experienced employers
may pay a lower or higher rate depending on their
history of involuntary termination of employees.
The less involuntary termination, the lower the rate and
vice versa.
Note: In addition to UI taxes some states also require payment for Disability Insurance (DI) & Work Force Development/Supplemental Workforce Fund (WF/SWF), Family
Leave Insurance (FLI)
The taxable wage
for states range from $7,000 to $38,200.
You can find the
specific state UI rates by clicking on this link. |
|
Domestic Employers |
|
What is a Domestic Employee:
A domestic (or household) worker is an employee who performs domestic
services in a private home. Examples of household
employees are: babysitters, caretakers, cleaning people,
drivers, nannies, health aides, yard workers and private
nurses.
What
Coverage Must Employers Provide:
Employers of domestic employees must pay
state
and
federal
unemployment taxes if they pay cash wages to
household workers totaling $1,000, or more, in any
calendar quarter of the current or preceding year.
|
|
Employers of Agricultural Employees |
|
Employers must pay federal unemployment taxes if: (1)
they pay cash wages to employees of $20,000, or more, in
any calendar quarter; or, (2) in each of 20 different
calendar weeks in the current or preceding calendar
year, there was at least 1 day in which they had 10 or
more employees performing service in agricultural labor.
The 20 weeks do not have to be consecutive weeks, nor
must they be the same 10 employees, nor must all
employees be working at the same time of the day.
Generally, agricultural employers are also subject to
state unemployment taxes, and employers should contact
their state workforce agencies to learn the exact
requirements.
|
|
How to File and Pay Federal UI Tax |
|
The Federal Unemployment Tax Act (FUTA), authorizes the
Internal Revenue Service to collect a federal employer
tax used to fund state workforce agencies. Employers
pay this tax annually by filing
IRS Form 940.
(see
FUTA rates). |
|
How to File and Pay State UI Tax |
|
UI tax payments to
the states are made
quarterly.
Some States have an
online filing system while others do not.
Before you can
file and pay State UI taxes you must first register and
apply for a state UI Account number.
Nonprofit organizations and government entities may elect to reimburse the Unemployment Insurance Trust Fund for all benefits paid to their former employees on a dollar for dollar basis.
|