Unemployment Taxes for Employers

When it comes to unemployment benefits and the taxes that fund them, employers have a key role to play. In this post, we’ll break down the basics of what unemployment taxes are and how as an employer, you are responsible for paying them.

The Federal Unemployment Tax

The United States has a federal law called FUTA (Federal Unemployment Tax Act) that requires employers to contribute to the federal unemployment insurance program.

FUTA’s goal is to provide temporary financial assistance to workers who have lost their jobs and are actively seeking new employment.

As an employer, you are required to pay a tax on the wages you pay to your employers that will be applied toward unemployment benefits. This is done through payroll.

Currently, the federal unemployment tax rate is a standard rate of 6% for the first $7,000 of your employee’s wages. 

With that said, you can receive a credit for your federal tax rate if you pay your state unemployment taxes. This may bring your federal rate to 0.6%.

New York State's Unemployment Tax

The rate of unemployment taxes for employers varies state by state and will always be paid to the state where the employee works in. In most cases, states require separate registration based on the state your employees work in.

In New York State, the NY Department of Labor has an unemployment insurance program (UI). This means that employers in New York are required to pay unemployment insurance taxes to contibute to this program.

Here are a few things to remember:

• When you begin to hire employers, register with the NYSDOL using this form. You will then receive your Employer Registration Number (ERN).
  • At this point, your unemployment insurance tax rate will be calculated
  • Your tax rate is determined based on your industry, number of employees, and your history of layoffs and unemployment claims (read below for more info). The the new employer rate is 3.4%, but rates in general range from 2.1% - 9.9%.
• You are required to report your quarterly wages and pay unemployment insurance using your ERN
• If any claims are submitted by former employees, you are required to respond promptly.

So, How Does It Work?

The rate of unemployment taxes for employers varies state by state and will always be paid to the state where the employee works. In most cases, states require separate registration based on where your employees work.

For every payroll in NY State, the unemployment tax will be paid by the employer and put into New York’s Unemployment Insurance Trust Fund.

This is where the funds will be held and used to pay unemployment benefits to qualified unemployed persons. The amount of benefits someone receives is based on their previous earnings and state laws.

What makes someone eligible for unemployment in New York State?

• They’ve worked in New York for the past 18 months
• They’ve lost their job due to no fault of their own:
  • Reduced work force or company has downsized, restructured, or shut down
  • Job was eliminated or there was lack of work
  • Seasonal/temporary contract has ended
  • Unable to meet the qualifications of the job
  • Out of work due to uncontrollable circumstances

Common Questions - Clarified

The amount you pay per employee each year is capped. In 2023, for New York State, the capped amount per employee is $12,300. Check your state’s limit here.

Your rate can increase if you have a lot of turnover, causing previous staff to file for unemployment.

If you do not agree with an approved claim, you can fight it by asking for a hearing. This can be done by both a former employee and/or employer using this form.

Check out more Frequently Asked Questions here.