How Your Unemployment Tax Rates Are Computed

As business owners, taxes may seem like an inevitable fact of life. Much like how you have to buy gas to keep your car in motion, you have to pay your taxes to keep your business compliant with state and federal laws. Sometimes, you even have to spring for that premium level cost if your business has a hefty amount of unemployment claims. The good news is that your unemployment taxes are the only taxes that you can control. On that note, by controlling that cost you can help your company spend its resources on more pressing costs that will help it continue to grow. What to Know About Your Unemployment Tax Rates What are Unemployment Taxes? You have unemployment taxes because of the Federal Unemployment Tax Act, a federal law that imposes an employer tax to help fund state workforce agencies. You, as a business, report this tax annually by filing a Form 940 with the IRS. What is My Unemployment Tax Rate? Your tax rate can vary by state to state or by how many unemployment claims have been made against your company. Generally speaking, every state assigns a standard rate for employers newly in business.  The New Employer Rate may be assigned for 1-3 years.  After that, the rate for the following years are based on your own history of benefit charges and taxable payroll. What are the 3 Components of My Unemployment Tax Rate as an Experience Rated Employer? Most states look at the following three components in determining your tax rate: Benefit charges paid Taxable Payroll Contributions (taxes) paid What Can Affect My Unemployment...