Unemployment costs have grown rapidly, increasing by more than 80 percent in the last decade alone. To help lower your costs and keep them under control, you need to understand all the aspects of unemployment insurance (UI) tax rates.

In each state, employers are charged a different amount of unemployment tax per employee. Employers make quarterly UI tax payments, which can also change per quarter. These costs are based on two different components of the UI tax system.

Federal Unemployment Tax Act (FUTA)

The first component of the tax system is the federal unemployment insurance act (FUTA). These federal taxes, along with the state systems, help provide benefit payments for unemployed workers.

For 2015, the FUTA rate is 6 percent of the first $7,000 of employee wages. However, if you pay your state and federal UI taxes on time and correctly, then you can receive a 5.4 percent credit on the FUTA cost. So in essence, you pay just .6 percent of that $7000 - or $42 per employee each year.  

State Unemployment Tax Act (SUTA)

The second component of the UI tax system is the State Unemployment Tax Act (SUTA). Unlike the FUTA, which is the same for employers in all states, the SUTA varies greatly by state. Each employer can also have a different tax rate, based on how well they manage UI claims and costs.

The maximum SUTA tax rate varies from state to state - from 5.4 percent at the low end (in a number of states) to 12 percent at the high end (in Wisconsin).  

When determining how much you owe in UI taxes, you must multiply your tax rate by the amount of taxable wages each of your employees earns. The amount of taxable wages per employee varies by state as well - $7,000 on the low end (in several states) to $39,700 on the high end (in Alaska).  

Because each employee earns throughout the year, they often pass the amount of taxable wages in the first two quarters of the year. This means that your tax payments will likely be lower in the third and fourth quarters of the year as you will have already paid enough taxes on many employees.

Because your SUTA tax rate and amount of taxable wages can vary so much, you will need to do some research into your state’s unemployment insurance regulations to determine how much each employee costs you in UI taxes each year.

For example, an employer in Nebraska, even if they have a maximum UI tax rate, would only pay about $486 per year per employee. However, a North Dakota employer with a maximum UI tax rates would pay $3,987 per employee per year in UI taxes. Because of these large differences in UI taxes in each state, it is vital that you understand your state’s UI taxes and how to manage your claims.

You can find help managing your UI claims and costs, helping you lower your state UI taxes. For more information, please visit us on the web at unemploymenttracker.com