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Unemployment taxes

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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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Unemployment taxes is a term that refers to the federal (FUTA) and state (SUTA) taxes paid by employers on employee wages that support the unemployment insurance program. Unemployment taxes are a type of employment tax.

As of July 2021, the FUTA tax rate was 6% of the first $7,000 in wages paid to each employee annually. Each state sets its own tax rate range, wage base (the amount of pay an employer needs to pay taxes on for each employee), and experience rating system.

Background

FUTA and SUTA tax revenues are transferred to the federal Unemployment Trust Fund (UTF).

FUTA revenue funds the UTF's Employment Security Administration Account, which pays for federal and state unemployment insurance administration costs. The excess funds not needed for the Administration account fund the Extended Unemployment Compensation Account (EUCA) to pay the federal half of extended benefits. Excesses from the EUCA flow into the Federal Unemployment Account, which loans funds to State Trust Fund Accounts (STFA).[1]

State unemployment tax revenues are transferred to the appropriate STFA's in the UTF. Each state uses the money in its fund to pay regular unemployment benefits and its share of extended benefits.[1]

FUTA taxes

See also: Federal Unemployment Tax

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.[2][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.[4]

Exempt wages

The following types of wages are exempt from FUTA taxes:[5][6]

  • Wages paid by a 501(c)(3) nonprofit organization.
  • Wages paid for services performed outside the United States.[7]
  • Wages paid to a beneficiary or estate after the calendar year of a worker's death.
  • Wages paid by a parent to a child under age 21.
  • Wages paid by a child to a parent.
  • Wages paid from spouse to spouse.
  • Wages paid by foreign governments and international organizations.
  • Wages paid by a state or local government (or another political subdivision).
  • Wages paid by the United States federal government.
  • Wages paid to newspaper carriers under age 18.
  • Wages paid to a full-time student working fewer than 13 weeks during a calendar year for seasonal camps.
  • Wages paid to statutory nonemployees (such as qualified real estate agents and direct sellers).
  • Wages paid by a school to a student of the school.
  • Wages paid by a hospital to interns.

Penalties for nonpayment

Failure to pay federal employment taxes can result in the assessment of fees, fines, and prison time. Late fees can range from 0.5% to 25% of the amount owed. Willful evasion of federal employment taxes is a felony punishable by five years in prison and fines of up to $250,000 for individuals, $500,000 for corporations, or both. Willful failure to file a tax return or provide information required by the Internal Revenue Service (IRS) is a misdemeanor punishable by up to one year in prison and fines up to $25,000 for individuals or $100,000 for corporations.[8][9][10][11]

See also

External links

Footnotes

  1. ↑ 1.0 1.1 Washington State Legislature, "Washington State's Experience Rating System," accessed July 6, 2021
  2. ↑ Brookings, "How does unemployment insurance work? And how is it changing during the coronavirus pandemic?" July 20, 2020
  3. ↑ Employment Law Firms, "How Unemployment Works," accessed May 18, 2021
  4. ↑ Internal Revenue Service, "FUTA Credit Reduction," accessed August 4, 2022
  5. ↑ Internal Revenue Services, "Publication 15, (Circular E), Employer's Tax Guide For Use in 2021," accessed July 6, 2021
  6. ↑ Internal Revenue Services, "Publication 15-A, Employer's Supplemental Tax Guide For Use in 2021," accessed July 6, 2021
  7. ↑ Unless on or in connection with an American vessel or aircraft and either performed under contract made in U.S., or alien is employed on such vessel or aircraft when it touches U.S. port.
  8. ↑ IRS, "Interest and penalties for filing and paying taxes late," accessed February 22, 2023
  9. ↑ Esfandi Law Group, "FEDERAL TAX EVASION," accessed August 4, 2022
  10. ↑ IRS, IRS Rate Increase accessed August 4, 2022
  11. ↑ Tax Attorney, payroll accessed August 4, 2022
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SUTA taxes by state

See also: State unemployment tax

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:[1][2][3]

  • 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[4] 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

Penalties for nonpayment

Businesses that falsely classify employees as independent contractors, neglect to report wages, or set up fictitious employer accounts to avoid unemployment tax liabilities are guilty of unemployment insurance fraud.

State laws governing unemployment insurance may classify unemployment insurance fraud as either a misdemeanor or felony offense, depending on the extent of the fraud. Federal guidelines require states to assess a minimum penalty of 15% of the amount of the fraudulent claim, according to the U.S. Department of Labor. States generally prohibit individuals found guilty of committing unemployment insurance fraud from receiving future benefits for a minimum of six weeks for every week of fraudulent claims.[5][6]

Criminal prosecution under unemployment insurance laws may result in the following penalties, depending on the state:[5][6]

  • Fines up to or exceeding $10,000, depending on the state.
  • Incarceration.
  • Probation in addition to, or in lieu of, incarceration.
  • Repayment of fraudulent benefits.
  • Forfeiture of future income tax refunds.
  • Permanent loss of eligibility for unemployment insurance benefits.

See also

External links

Footnotes

  1. ↑ Patriot, "What Is My State Unemployment Tax Rate?" accessed March 12, 2025
  2. ↑ APS Payroll, "SUTA WAGE BASES," accessed March 12, 2025
  3. ↑ Paycom, "SUTA Tax Rate 2024: All You Need to Know," accessed March 12, 2025
  4. ↑ Dependent on employer's experience rating.
  5. ↑ 5.0 5.1 U.S. Department of Labor, "Report Unemployment Insurance Fraud," accessed May 20, 2021
  6. ↑ 6.0 6.1 Work It Daily, "Are You Committing Unemployment Insurance Fraud By Accident?" April 14, 2020
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