Unemployment Insurance Tax Topic, Employment & Training Administration (ETA) – U.S. Department of Labor

unemployment insurance taxes

Unemployment Insurance (UI) is a federal-state program funded jointly through federal and state employer payroll taxes (federal/state UI tax). In general, employers must pay state and federal unemployment taxes if they: (1) pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or, (2) had at least one employee on any weekday for 20 weeks in a calendar year, regardless of whether or not the weeks were consecutive. however, some state laws differ from federal law and employers should contact their state labor agencies for exact requirements. click here for state links.

federal unemployment tax law

The Federal Unemployment Tax Act (FUTA) authorizes the Internal Revenue Service (IRS) to collect a federal employer tax that is used to fund state employment agencies. Employers pay this tax annually by filing IRS Form 940. futa covers the costs of administering ui and job service programs in all states. In addition, Futa pays half the cost of extended unemployment benefits (during periods of high unemployment) and provides a fund from which states can borrow, if needed, to pay benefits. click here for irs forms 940 (http://www.irs.gov/pub/irs-pdf/f940.pdf) and schedule 940 a (http://www.irs.gov/pub/irs -pdf/f940sa.pdf) for futa year 2012 federal unemployment taxes. The new forms have been updated to include the latest information for states with credit reductions for futa year 2012.

Reading: What is unemployment insurance tax

federal tax rate

futa taxes are calculated by multiplying 6.0% by the employer’s taxable wages. The basis of taxable wages is the first $7,000 in wages paid to each employee during a calendar year. Employers who pay their state unemployment taxes on a timely basis receive a compensation credit of up to 5.4%, regardless of the rate of taxes paid to the state. the futa tax rate for employers in states that are not subject to a futa credit reduction is generally 0.6% (6.0% – 5.4%), for a maximum futa tax of $42.00 per employee, per year (.006 x $7,000 = $42.00).

state unemployment tax

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State law determines the unemployment insurance tax rates for each state. For a table of current tax rates and information on the basis of taxable wages for individual states, click here https://oui.doleta.gov/unemploy/statelaws.asp and select the significant provisions of the interface state laws of Username.

State unemployment tax, paid to state labor agencies, is used only to pay benefits to eligible unemployed workers.

misclassification of workers

Worker misclassification occurs when an employer incorrectly classifies a worker as non-employee. As a result, employers do not remit the appropriate amount of federal and state employment taxes, and workers may not receive unemployment insurance benefits or adequate protections afforded to them as employees under the Fair Labor Standards Act. . misclassifications may be due to misinterpretation of the rules or intentional violation of the law.

The rules that determine employment classification at the federal level follow common law. For the IRS, the facts that provide evidence of the degree of control and independence are divided into three categories:

  • behavior: does the company control or have the right to control what the worker does and how they do their job?
  • financial: are the business aspects of the worker’s job controlled by the payer?
  • type of relationship: are there written contracts or employee-type benefits such as pension plan, insurance, vacation pay, etc.? Will the relationship continue and is the work done a key aspect of the business?
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    These factors are evaluated on the IRS Form SS-8 (http://www.irs.gov/pub/irs-pdf/fss8.pdf), which employers and workers can file with the IRS to apply. a determination of a worker’s status for purposes of federal payroll taxes and income tax withholding. State unemployment insurance agencies use their own rules to determine whether an activity should be categorized as employment for state UI purposes. click here for state links.

    national employer coverage

    Employers of domestic employees must pay state and federal unemployment taxes if they pay cash wages to domestic workers totaling $1,000 or more, in any calendar quarter of the current or prior year. A domestic worker is an employee who performs domestic services in a private home. Examples of domestic helpers are: nannies, caregivers, cleaners, drivers, babysitters, health assistants, garden workers, and private duty nurses.

    employers of agricultural workers

    Employers must pay federal unemployment taxes if they: (1) pay wages to employees of $20,000 or more, in any calendar quarter; or, (2) in each of the 20 different calendar weeks in the current or prior calendar year, there was at least 1 day on which they had 10 or more employees performing farm labor services. The 20 weeks do not have to be consecutive weeks, nor do they have to be the same 10 employees, nor do all employees have to be working at the same time of day.

    Agricultural employers are also generally subject to state unemployment taxes, and employers should contact their state labor agencies for exact requirements.

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