Unemployment tax is a type of payroll tax that helps fund unemployment benefits for eligible workers who lose their jobs. These taxes exist at both the federal and state levels.
A Closer Look at Unemployment Taxes
While individual states do collect their own unemployment taxes, the federal government also plays a role by collecting its portion and managing the funds. Federal unemployment tax revenue is typically used to support the administrative operations of unemployment programs, primarily through grants to states. Meanwhile, the revenue collected by states is used to directly fund benefit payments to unemployed workers.
Employers are often subject to a system known as “experience rating,” which adjusts their tax rate based on the history of claims made by former employees. In general, the more claims associated with a company, the higher its unemployment tax rate.
Businesses using payroll providers like Beyond can stay compliant with these tax requirements by automating payments and ensuring accurate reporting.