How Much in Taxes Do You Pay for Unemployment?


When you become unemployed through no fault of your own, you are eligible in most cases to collect unemployment benefits, which pay you a percentage of your salary while you look for a new job. This is a benefit that you have paid for in a way. Unemployment benefits are funded by an unemployment tax that your employer pays on your behalf. While you don’t see the tax on your payroll stub, it is a cost your employer pays to have you work and it is money that could have otherwise gone into your paycheck.

Federal Unemployment Tax

The Federal Unemployment Tax used through state unemployment systems is the pool of money used to pay unemployment benefits. According to the IRS, most employers pay both the Federal Unemployment Tax and its state equivalent. Employers set aside a percentage of your pay in your name and then deposit it with the federal and state governments on a regular basis.

Exempt Compensation

Unemployment taxes are paid on most compensation employees receive. Eligible compensation includes salaries, vacation pay, bonuses, commissions, and fringe benefits. Some forms of compensation are exempt including wages paid to agricultural workers; household employees (unless it exceeds $1,000 in any quarter); employees of religious, charitable, educational, or certain other tax-exempt organizations; federal employees; state and municipal employees and District of Columbia government employees.

Unemployment Tax Rate

The federal unemployment tax is 6.2 percent of eligible wages until June 30, 2011. Beginning July 1, 2011, the tax will be 6 percent of eligible wages. The federal tax applies to the first $7,000 an employee earns during the year. This means that employers pay $434 a year to employ anyone who makes over $7,000. The calculation for state unemployment taxes will vary from state to state. So for most full-time employees, employers pay at least $434 a year to employ them and maybe more depending on how high the state unemployment tax is.


In many instances, employers can take deduct the amount of state unemployment taxes they pay on your behalf from the federal unemployment tax up to 5.4 percent. If you are eligible for that maximum amount, then your federal unemployment tax becomes 0.8 percent (0.6 percent as of July 1, 2011). If your state exempts some forms of compensation for the state’s unemployment tax but it is subject to the federal unemployment tax, then you will not be eligible for the 5.4 percent credit.

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