What Is an Unemployment Account?
The state manages an unemployment account on behalf of the employer who pays quarterly taxes into it. Companies with employees have at least one, if not two unemployment accounts at the state and federal level. Both forms of government tie the employer to the individual unemployment accounts through separate state and federal tax or employer identification numbers. Qualified former employees receive unemployment payments from the employer's unemployment account.
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Unemployment Account
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The quarterly taxes received by the state and federal governments and paid by the employer deposit directly into the employer's unemployment accounts at both levels. State unemployment offices uses the employer's account funds to make unemployment payments to employees laid off from work and legitimately entitled to unemployment benefits. Employees not entitled, such as those let go for cause in most states, cannot receive unemployment benefits paid from the employer's account. The federal fund backs up the state fund to ensure a continual flow of benefits to eligible out-of-work people when state funds run low.
Unemployment Payments
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When a former employee applies for unemployment benefits, he must undergo a waiting period. During the waiting period, the state contacts the employer as to the nature of the employee's termination. The employer, if he wants to have a say as to whether the employee should receive unemployment payments from his unemployment account, must respond to the state's request for information within the designated period. Timely reporting by the employer ensures employees not entitled to benefits and fired for cause do not receive unemployment benefits from the employer's account. Former employees not legally entitled to benefits would deplete funds available in the employer's unemployment account to employees rightfully entitled to benefits under law.
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Quarterly Tax and Wage Reports
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Each quarter the employer self-assesses the unemployment tax for each person on the payroll. Along with the filing of the quarterly tax and wage reports, the employer includes the combined self-assessed taxes for payment into the employer's unemployment account in the form of one lump sum payment. Employers file IRS Form 940 to report federal unemployment tax payments. Each state uses its own forms for the self-assessed tax. At the state level, new companies may pay higher tax rates into their accounts than older companies because of the risk associated with new companies and the need to ensure future benefits for the company's employees, if needed.
Calculating Payments into Unemployment Account
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Federal unemployment tax calculates at 6.2 percent of taxable wages on the first $7,000 paid to each employee during the calendar year. An employer pays up to a maximum of $56 per employee per year into the federal unemployment account. Employers who also pay a state unemployment tax receive a credit on their taxes with the IRS. Unemployment tax at the state level varies by state but calculates in the same manner as the federal does -- a specific percentage on the first $7,000 of salary per employee not to exceed a set amount per year. All funds collected pay into the employer's unemployment account.
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