Who Pays Unemployment Tax?

By hrlineup | 30.01.2020

In all states, there is a population of people who are unemployed. Some are unemployed because they have not yet searched for employment. There are others though that were previously employed and lost their jobs before they could seek solutions. It is these individuals that may qualify for receiving unemployment tax. The reasons that make it possible to get this tax also include retrenchment and still searching for another job, a job recall that is due to happen within 6 weeks of when they last worked, or training that has been approved by the employer.

Unemployment taxes directly fund unemployment benefits for those who are not working. They are based on the amount that the employees were being paid as wages.

What are FUTA and SUTA taxes?

It is essential to note that unemployment tax is divided into two main types. FUTA stands for Federal Unemployment Tax and is responsible for the state unemployment insurance programs. SUTA stands for State Unemployment Tax and is used to ensure that unemployment insurance benefits are paid off to unemployed workers.

FUTA are the unemployment taxes paid by employers. This tax is payable if the total wages paid out in a calendar quarter exceed $1500, or if the employer had at least one employee for part of a day within 20 or more different weeks in a calendar year. The average FUTA tax rate is 6%.

Similar to FUTA, SUTA is paid by employers as well. Unlike FUTA, SUTA does not have a standard rate. The range is as low as 1% in some states, though it can go up to 3.4%. This is because the rate is set by each state. Employers must remember that the SUTA tax should be paid in the state the employee lives within. If the employee lives in more than one state, the SUTA tax payment needs to be paid in all the states they live in.

When to pay unemployment tax liability

The unemployment tax is not paid on a monthly basis. In the case of FUTA, the taxes are paid on a quarterly basis. Each quarter, these taxes must be filed if they exceed a total of $500. If the total liability is less than $500, the obligation can be rolled over into the next quarter, though all payments should be completed by the final quarter. The dates that must be noted for FUTA payments are: –

  • 30th April
  • 31st July
  • 31st October and
  • 31st

SUTA taxes are highly variable as they depend on which state the payments are being made. Therefore, to determine when they should be paid, one must pay attention to the state law.

It is possible to bring down the total cost of these taxes, especially the FUTA tax. A business may be able to benefit from a tax deduction of up to 90% if they have a proven track record of making timely unemployment contributions, especially without any late payments. As the employer is fully responsible for all deductions, it is worth ensuring they can get as much deduction as possible.