Staying prepared with Unemployment Insurance
In the US, the unemployment insurance program was enacted in the year 1935 as part of the social security act. It was structured to be a ‘self financing social insurance program’, designed to pay benefits to eligible unemployed workers through the imposition of payroll taxes on covered employees.
Currently, workers who are laid off by their employers are eligible to receive benefits of up to fifty to sixty percent of the previous wages drawn by them. The percentage varies from one state to another. Generally, the unemployed individual can collect the benefits for a period of 26 weeks. The benefits stop when they are either recalled back to their jobs or find a different one. They also become disentitled when they leave the labor force.
The Unemployment insurance program is a federal-state program that is funded jointly by imposing employer payroll taxes, both at the state and the federal level. An employer is liable to pay state and federal unemployment taxes if they fulfill either or both of the following two conditions. Firstly, if the total amount of payment they make to their employees in any quarter of one calendar year is $1500 or above, and secondly, if they employed at least one person even for a day for 20 weeks (irrespective of whether the weeks were consecutive or non consecutive) in a calendar year. Some state laws may have slightly differing stipulations from the federal laws, and employers would be well advised to contact the concerned state agencies for exact details.
The federal unemployment tax is authorized under FUTA (Federal Unemployment Tax Act). The tax is collected by the Internal Revenue Service, which is paid by employers through filing the IRS Form 940. All the costs for administering state Unemployment Insurance are covered by FUTA. During periods that experience high levels of unemployment, FUTA also makes 50% payment of the costs of extended unemployment benefits. It gives the states access to a fund from which they are able to borrow to pay benefits, it they need to.
The federal tax structure under FUTA envisages a payment of 6.2% of the taxable wages; the base wage taken as the first $7000 of wages paid to an employee in one calendar year. There is a tax rebate of 5.8% to employers making timely payment of state level unemployment insurance contributions. Therefore, for such an employer, the effective FUTA rate would be 0.8%, keeping in view the base wage limit of $7000. This would translate to $56 for each employee in one calendar year. State taxes are formulated according to the laws of each individual state.
Federal Unemployment tax is also payable to domestic and agricultural employees. Workers performing as household workers, for example, drivers, nannies, babysitters, health care workers, private nurses, cleaning people, and yard workers, among others, come under the category of domestic services. If their wages total $1000 or above in any quarter of the current or preceding calendar year, the employer is liable to pay the federal unemployment tax.
In the case of agricultural employees, when payment made to them totals $20000 or more in any calendar quarter, or when ten or more employees are employed in agricultural labor on any single day in twenty continuous or separate weeks of the current or preceding calendar year, the employer becomes liable for paying the federal unemployment tax.
As mentioned, state unemployment taxes are formulated according to the laws of each individual state, and may be at variance with other states. For exact details, employers should contact the relevant agency in their own states.