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Unemployment Trust Fund

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Unemployment insurance
How is the joint federal-state unemployment insurance program funded?

Federal and state unemployment taxes fund the joint federal-state unemployment insurance program. Federal unemployment tax revenues fund accounts in the federal Unemployment Trust Fund (UTF) that pay for federal and state unemployment insurance program administration costs, the federal portion of extended benefits, and loans to State Unemployment Trust Funds. State unemployment tax revenues fund State Unemployment Trust Funds, which pay regular benefits and the state portion of extended benefits. Read more about unemployment taxes here.

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The Unemployment Trust Fund (UTF) is a federal fund in which states deposit their unemployment insurance program taxes. Each state has a unique account in the fund to deposit its unemployment insurance program taxes. The money in each state's account is used to cover the state's unemployment insurance program expenses.[1]

In addition to the individual state accounts, the UTF also contains the Employment Security Administration Account (ESAA), the Extended Unemployment Compensation Account (EUCA), and the Federal Unemployment Account (FUA).

Background

State-funded accounts

State unemployment tax revenues are transferred to the appropriate State Unemployment Trust Fund account in the federal Unemployment Trust Fund. Each state uses the money in its fund to pay regular unemployment benefits and its share of extended benefits.[2]

New employers begin paying into the unemployment insurance system at the new employer rate. Depending on state laws, employers that have paid unemployment insurance taxes for a set time period (usually a few years) receive an experience rating. The more unemployment claims an employer has, the higher their tax rate.[3]

Alaska, New Jersey, and Pennsylvania also require employees to contribute to unemployment taxes.[4]

Federally funded accounts

In addition to the individual state accounts, the UTF also contains the following three accounts that are funded by Federal Unemployment Tax Act (FUTA) taxes:

Trust fund solvency by state

Federal unemployment insurance program guidelines recommend that states hold at least one year of projected benefit payments in reserves. States base the year of projected benefit payments on the highest level of unemployment insurance payments experienced during the last 20 years.[5]

States determine their program solvency by using the Average High Cost Multiple (AHCM)—the ratio of the state's trust fund balance to the average of its three highest years of unemployment insurance payments. States with an AHCM below 1.0 risk insolvency.[5]

As of a March 2024 report, 19 states had trust funds operating at or above the minimum solvency standard. Two states and the Virgin Islands had trust funds with the lowest (least solvent) AHCM value of 0.00.[6]

The map below identifies AHCM values by state as of March 2024. States shaded green have AHCM values above 1.0, while red states have AHCM values of 0.00. Gray states have AHCM values above 0.00 but below 1.0.[6]

AHCM values by state, March 2024
State AHCM value
Alabama 1.02
Alaska 2.16
Arizona 0.87
Arkansas 1.09
California 0.00
Colorado 0.10
Connecticut 0.01
Delaware 1.13
Florida 0.70
Georgia 0.45
Hawaii 0.44
Idaho 1.42
Illinois 0.23
Indiana 0.68
Iowa 1.40
Kansas 1.63
Kentucky 0.44
Louisiana 0.72
Maine 1.80
Maryland 1.09
Massachusetts 0.53
Michigan 0.41
Minnesota 0.51
Mississippi 1.24
Missouri 0.61
Montana 1.44
Nebraska 1.39
Nevada 0.58
New Hampshire 0.97
New Jersey 0.21
New Mexico 0.58
New York 0.00
North Carolina 1.06
North Dakota 1.07
Ohio 0.41
Oklahoma 0.57
Oregon 2.12
Pennsylvania 0.13
Rhode Island 0.77
South Carolina 1.07
South Dakota 1.86
Tennessee 0.72
Texas 0.19
Utah 1.18
Vermont 0.83
Virginia 0.79
Washington 0.64
Washington, D.C. 0.72
West Virginia 0.81
Wisconsin 0.64
Wyoming 2.17

Taxes funding UTF accounts

UTF accounts are funded by either federal unemployment taxes (FUTA) or state unemployment taxes (SUTA). The following sections describe the assessment of FUTA and SUTA taxes.

Federal unemployment tax amounts

While state tax amounts vary, the Federal Unemployment Tax Act (FUTA) tax is 6% of the federal unemployment tax wage base—the first $7,000 of an employee's wages—as of April 2025. Employers can receive an offset of up to 5.4% of their FUTA tax when they pay state unemployment taxes on time. An employer that receives the full 5.4% FUTA credit, therefore, pays 0.6% of the first $7,000 of an employee's wages, or $42, in FUTA tax per qualifying employee.[7][3]

FUTA tax credits are reduced for employers in states that have outstanding federal unemployment loans from the Unemployment Trust Fund’s Federal Unemployment Account on January 1 for at least two consecutive years. If states do not pay federal unemployment loans back by November 10 of the second consecutive year, FUTA tax credits are reduced by 0.3%. The reduction would limit the maximum FUTA tax credit to 5.1%, and employers would pay at least $63 in FUTA taxes per employee making $7,000 or more.[8]

State unemployment tax amounts

SUTA tax amounts vary by state. The following list provides a summary of the SUTA tax amounts across states as of January 2025:[4][9][10]

  • The new employer rate ranged from 0.35% in South Carolina to 6.09% in some cases in North Dakota.
  • Regular rates ranged from 0% for employers with the lowest experience rating in 10 states (Iowa, Missouri, Mississippi, Montana, Kansas, Nebraska, New York, South Dakota, Wisconsin, and Wyoming) up to 12.65% in Massachusetts for employers with the highest experience ratings.
  • Arkansas, California, Florida, and Tennessee had the lowest wage bases at $7,000, and Washington had the highest wage base at $72,800.

The table below outlines regular SUTA tax rate ranges for experienced employers and wage bases and new employer SUTA tax rates for all 50 states as of January 2025.

State unemployment tax rates
State SUTA new employer tax rate Employer tax rate range[11] SUTA wage bases
Alabama 2.7% 0.20% – 6.80% $8,000
Alaska 1.0% 1.00% – 5.40% $51,700
Arizona 2.0% 0.04% – 9.72% $8,000
Arkansas 2.0% 0.1% – 5.0% $7,000
California 3.4% 1.5% – 6.2% $7,000
Colorado 3.05% 0.64% – 12.34% $27,200
Connecticut 2.2% 0.1% – 10.0% $26,100
Delaware 1.0% 0.3% – 5.4% $12,500
D.C. 2.7% or prior year average 1.00% – 7.40% $9,000
Florida 2.7% 0.1% – 5.4% $7,000
Georgia 2.7% 0.06% – 8.1% $9,500
Hawaii 2.4% 2.4% – 5.6% $62,000
Idaho 1.0% 0.23% – 5.4% $55,300
Illinois 3.65% 0.75% – 7.85% $13,916
Indiana 2.5% 0.5% – 11.2% $9,500
Iowa 1.0% 0.0% – 7.0% $39,500
Kansas 1.75% 0.0% – 6.65% $14,000
Kentucky 2.7% 0.3% – 9.0% $11,700
Louisiana Varies 0.09% – 6.2% $7,700
Maine 2.41% 0.3% – 6.27% $12,000
Maryland 2.6% 0.3% – 7.5% $8,500
Massachusetts 2.13% 0.83% – 12.65% $15,000
Michigan 2.7% 0.06% – 10.3% $9,000
Minnesota Varies 0.4% – 8.9% $43,000
Mississippi 1.0% 0.0% – 5.4% $14,000
Missouri 1.0% (nonprofits) 2.376% (others) 0.0% – 6.0% $9,500
Montana Varies 0.00% – 6.12% $45,100
Nebraska 1.25% 0.0% – 5.4% $9,000 ($24,000 for max rate)
Nevada 2.95% 0.25% – 5.4% $41,800
New Hampshire 2.7% 1.00% – 7.00% $14,000
New Jersey 3.1% 0.6% – 6.4% $43,300
New Mexico 1.0% 0.33% – 5.4% $33,200
New York 4.1% 0.0% – 8.9% $12,800
North Carolina 1.0% 0.06% – 5.76% $32,600
North Dakota 1.03% (positive) 6.09% (negative) 0.08% – 9.69% $45,100
Ohio 2.7% 0.5% – 10.2% $9,000
Oklahoma 1.5% 0.3% – 9.2% $28,200
Oregon 2.4% 0.9% – 5.4% $54,300
Pennsylvania 3.822% 1.42% – 10.37% $10,000
Rhode Island 1.21% 1.1% – 9.7% $29,800 ($31,300 for negative balance)
South Carolina 0.35% or 1% 0.06% – 5.46% $14,000
South Dakota 1.2% 0.0% – 8.8% $15,000
Tennessee Varies 0.01% – 10.0% $7,000
Texas 2.7% 0.25% – 6.25% $9,000
Utah Varies 0.2% – 7.2% $48,900
Vermont 1.0% 0.4% – 5.4% $14,800
Virginia 2.5% 0.1% – 6.2% $8,000
Washington Varies 0.27% – 8.15% $72,800
West Virginia 2.7% 1.5% – 8.5% $9,500
Wisconsin 3.05% (<$500k payroll) 3.25% (>$500k payroll) 0.0% – 12.0% $14,000
Wyoming Varies 0.0% – 8.5% $32,400

See also

External links

Footnotes

  1. ↑ Tax Policy Center, "Briefing Book," accessed May 25, 2021
  2. ↑ Washington State Legislature, "Washington State's Experience Rating System," accessed July 6, 2021
  3. ↑ 3.0 3.1 Employment Law Firms, "How Unemployment Works," accessed May 18, 2021
  4. ↑ 4.0 4.1 Patriot, "What Is My State Unemployment Tax Rate?" accessed March 8, 2023 Cite error: Invalid <ref> tag; name "patriot" defined multiple times with different content
  5. ↑ 5.0 5.1 Cite error: Invalid <ref> tag; no text was provided for refs named merc
  6. ↑ 6.0 6.1 U.S. Department of Labor, "State Unemployment Insurance Trust Fund Solvency Report 2024," March 2024
  7. ↑ Brookings, "How does unemployment insurance work? And how is it changing during the coronavirus pandemic?" July 20, 2020
  8. ↑ Internal Revenue Service, "FUTA Credit Reduction," accessed August 4, 2022
  9. ↑ APS Payroll, "SUTA WAGE BASES," accessed March 12, 2025
  10. ↑ Paycom, "SUTA Tax Rate 2024: All You Need to Know," accessed March 12, 2025
  11. ↑ Dependent on employer's experience rating.
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