Employers and Unemployment Tax

Money that is paid by the government to unemployed workers is funded by an unemployment tax on employers. Employers must pay unemployment taxes to both state and federal governments.

• Often you may think of large corporations or even small businesses as employers, but even individuals may employ others and be subject to paying the unemployment tax. For example, households that employ workers such as nannies, cleaning people, or landscapers pay unemployment taxes.
  
• Whether or not you need to pay unemployment taxes based on your household workers depends on how much money you spend on household services.
  
• You are required to pay unemployment tax to the government for each worker who you pay at least $1000 over the course of three months.
  

The rules for agricultural workers are a little different. Whether or not an employer must pay the unemployment tax on agricultural workers depends on how many employees there are at a given time as well as on how much money is paid to the employees in a three-month time span.
In an ambiguous situation, the government defines an employee by several criteria. An employee is someone who you have a contractual agreement with to perform specified work in exchange for pay. An employee is also defined as someone whose activities you control while he or she is on the clock. In other words, if someone is spending his or her time doing a specific task that is part of a job description and is not able to perform other activities during this time, that person is considered an employee. Contact your state workforce agency if you are unsure whether you or someone else should be classified as an employee that requires an employer to pay unemployment tax.
Employers pay federal unemployment tax on the first $7000 they pay to each employee each year. The federal unemployment tax rate for 2010 was 6.2%. However, many employers earned a tax credit of 5.4%, meaning they actually only owed the government .8% of $7000 for each employee. Most employers only need to pay their unemployment taxes on time in order to receive the credit.
State unemployment tax rates and regulations will vary. Your state’s workforce agency can provide you with information on who needs to pay and how much the unemployment tax will be.

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