Unemployment Insurance Tax is paid by the employers for financing the State-Federal led unemployment insurance program. The funding of the unemployment insurance benefits is usually done from the payroll taxes of the employers. The employers are required to pay the unemployment insurance tax under the following conditions:
• If the amount paid to the employees exceeds USD$1500 and more within a quarter in a calendar year
• In the event if the employer recruited at least one employee on any weekday for the past 20 weeks of a calendar year.
There are few rules, which differ from state to state. Some of the state laws may also be different from the Federal laws.
SUTA Dumping:
SUTA or State Unemployment Tax Act envisages that every employer should pay unemployment taxes in a fair manner and avoid “dodging” of these taxes. The reason being there have been few states where employers were known to “dodge” so that they did not have to shell out the tax money.
FUTA or Federal Unemployment Tax Act:
The Federal Unemployment Tax Act directs the IRS or the Internal Revenue Service in matters relating to the collection of the taxes from the employers. The taxes collected by the IRS are used for financing the various activities of the state's labor force. The various areas where the fund from these taxes are utilized are as follows:
• Funding activities of the labor force in a state.
• Cost incurred on the administration of various Job Service as well as Unemployment Insurance projects.
• At times when the rate of unemployment is very high, part of the fund is also used for extending unemployment insurance benefits.
• There is also provision of a state borrowing money from this fund, when needed.
Unemployment Insurance Federal tax rate:
The “taxable wage base” is referred to as the initial USD$7,000, which is paid in wage form to an employee within a calendar year. The FUTA or the Federal Unemployment Tax Act rate is 6.2% on the wage, which is taxable. The state unemployment insurance tax rates may be different from one state to another.