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Unemployment Insurance

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of the unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays FUTA tax; it is not withheld from the employee’s wages.


The Department of Labor provides information and links on what unemployment insurance is, how it is funded, and how employees are eligible for it.


In general, the Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under state law), and meet other eligibility requirements of state law.







Source:  IRS.gov

Understanding Unemployment Insurance

U.S. Department of Labor - Find It By Topic - Unemployment Insurance (UI)

 

The Department of Labor's Unemployment Insurance (UI) programs provide unemployment benefits to eligible workers who become unemployed through no fault of their own, and meet certain other eligibility requirements.

Choose from the following Web pages to find information about who is eligible for these benefits and how to file a claim.


DOL Web Pages on This Topic


State Unemployment Insurance
The Federal-State Unemployment Insurance Program provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under state law), and meet other eligibility requirements of state law.


Disaster Unemployment Assistance (DUA)
Disaster Unemployment Assistance provides financial assistance to individuals whose employment or self-employment has been lost or interrupted as a direct result of a major disaster declared by the President of the United States.


Unemployment Compensation for Federal Employees
The Unemployment Compensation for Federal Employees program provides benefits for eligible unemployed former civilian federal employees.


Unemployment Compensation for Ex-Servicemembers
The Unemployment Compensation for Ex-Servicemembers program provides benefits for eligible ex-military personnel.


Extended Benefits
Extended Benefits are available to workers who have exhausted regular unemployment insurance benefits during periods of high unemployment.


Trade Readjustment Allowances (TRA)
Trade Readjustment Allowances are income support to persons who have exhausted Unemployment Compensation and whose jobs were affected by foreign imports.


Self-Employment Assistance
Self-Employment Assistance offers dislocated workers the opportunity for early re-employment.


Through One-Stop Career Centers, all citizens can access services tailored to their individual needs. This includes employment and job training services, career planning and guidance and much more.


CareerOneStop.org provides electronic tools to assist workers with finding a job, utilizing available training opportunities or conducting career planning. There is no cost to businesses or workers who use this service.


The Department of Labor's toll-free Call Center can assist workers and employers with questions about Job Loss, Layoffs, Business Closures, Unemployment Benefits and Job Training: 1-877-US-2JOBS (TTY: 1-877-889-5627)


Additional information on topics relevant to the unemployed can be found on the Department of Labor's Web interface, Find It! By Audience — Job Seekers/Unemployed.


Unemployment Insurance Tax Topic  Source: www.dol.gov


Unemployment Insurance Taxes


Unemployment Insurance (UI) is a federal-state program jointly financed through Federal and state employer payroll taxes (federal/state UI tax). 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. However, some state laws differ from the Federal law and employers should contact their state workforce agencies to learn the exact requirements. Click here for state links.


Federal Unemployment Tax Act


The Federal Unemployment Tax Act (FUTA), authorizes the Internal Revenue Service(IRS) to collect a Federal employer tax used to fund state workforce agencies. Employers pay this tax annually by filing IRS Form 940. FUTA covers the costs of administering the UI 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. Click here for IRS forms 940 (http://www.irs.gov/pub/irs-pdf/f940.pdf) and 940 Schedule 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.


Federal Tax Rate


FUTA taxes are calculated by multiplying 6.0% times the employer's taxable wages. The taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay their state unemployment taxes on a timely basis receive an offset credit of up to 5.4% regardless of the rate of tax paid to the state. The FUTA tax rate for employers in states 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


State law determines individual state unemployment insurance tax rates. For a table of current tax rates and taxable wage base information for individual states, click here http://www.unemploymentinsurance.doleta.gov/unemploy/statelaws.asp and select Significant Provisions of State UI Laws.


The state unemployment tax, paid to state workforce agencies, is used solely for the payment of benefits to eligible unemployed workers.


Worker Misclassification


Worker misclassification occurs when an employer incorrectly classifies a worker as a non-employee. Consequently, employers do not remit the appropriate amount of Federal and state employment taxes, and workers may not receive unemployment insurance benefits or the appropriate protections afforded to them as employees under the Fair Labor Standards Act. Misclassifications can result from erroneous interpretation of the rules or from intentional disregard of the law.


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



These factors are evaluated on IRS Form SS-8 (http://www.irs.gov/pub/irs-pdf/fss8.pdf ), which employers and workers can file with the IRS to request a determination of the status of a worker for purposes of Federal employment taxes and income tax withholding. State unemployment insurance agencies use their own rules to determine whether to categorize an activity as employment for state UI purposes. Click here for state links.


Domestic Employers Coverage


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. A 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.


Employers of Agricultural Employees


Employers must pay Federal unemployment taxes if: (1) they pay 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.


Created: March 29, 2004


Updated: July 10, 2015