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 Unemployment Insurance

In general, the Federal-State Unemployment Insurance Program (or “UC” for unemployment compensation) provides unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under state law), and who meet other eligibility requirements of state law. Almost all wage and salary workers are now covered by the federal-state UC program. 

  • Unemployment insurance payments (benefits) are intended to provide temporary financial assistance to unemployed workers who meet the requirements of state law.
  • Each state administers a separate unemployment insurance program within guidelines established by federal law.
  • Eligibility for unemployment insurance, benefit amounts and the length of time benefits are available are determined by the state law under which unemployment insurance claims are established.
  • In the majority of states, benefit funding is based solely on a tax imposed on employers.

Who Pays for Unemployment Insurance

To pay for unemployment insurance, a federal tax called the Federal Unemployment Tax Act (FUTA) is levied on covered employers. The current FUTA tax rate is 6.0% for wages paid after June 30, 2011.

Covered Employers

An employer is subject to the federal unemployment tax if, during the current or preceding calendar year, he/she employed one or more individuals in each of at least 20 calendar weeks, or if he/she paid wages of $1,500 or more during any calendar quarter of either such year. There are variations on these requirements relating to employers in agriculture and domestic service:

  • In agriculture, employers who have at least 10 or more workers in each of at least 20 calendar weeks in the current or preceding calendar year or a cash payroll of at least $20,000 during any calendar quarter in either such year are subject to the tax.
  • In domestic service, employers who have a cash payroll of at least $1,000 in any calendar quarter in the current or preceding calendar year are subject to the tax.

Taxable wages are defined as all remuneration from employment- in cash or in kind- with certain exceptions. The exceptions include:

  • Earnings in excess of $7,000 in a year; and
  • Payments related to retirement, disability, hospital insurance, or similar fringe benefits.

Additional Resources

  • Contacts for State UI Tax Information and Assistance 
  • State Workforce Development Agency Home Pages 
  • Unemployment Compensation, U.S. Department of Labor

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