What Is The Tax Rate?

New employers are assigned a tax rate of 3.5%. That rate remains in effect for the first two calendar years. After that employers rates are assigned individually based on their experience and can vary between 5.4% and .05%. Employers pay only on the first $7,000.00 in wages paid to each employee each year. This amount is referred to as the tax base. Any amount paid to an employee beyond $7,000.00 in a year is referred to as excess wages and is not taxed.

Once a year, in February, if the employer is eligible for experience rating, new rates are automatically calculated. The reserve balance is divided by the employer’s average taxable payroll to create the employer’s reserve ratio. The ratio is applied to a table established annually by regulation. The higher the reserve ratio, the lower the combined tax rate assigned. If an employer’s reserve balance is negative, the account is assigned a rate higher than 3.5%. The range of rates is .05% to 5.4%. A rate notice is mailed at that time to employers eligible for a rate calculation.

Employers have an opportunity to make a voluntary payment into their account prior to March 10, each year and have that amount included in their reserve balance to help them qualify for a lower rate for that year. Sometimes a very small voluntary contribution is enough to qualify for the next lower tax rate and save a significant amount of money.

Non­profit employers who have received a 501(c)(3) exempt status from the IRS have a different liability criteria and a payment option for meeting their unemployment insurance liability. These employers becomes liable if the organization had four or more individuals in employment for some portion of a day in each of twenty different weeks, whether or not such weeks were consecutive, within either the current or preceding calendar year, regardless of whether they were employed at the same moment of time.

A 501(c)(3) employer has the option of paying the quarterly unemployment insurance tax (a contributory employer) or registering as a reimbursable employer instead. Each quarter, a reimbursable employer repays the Department of Labor dollar for dollar for any benefit payments made to former employees.