So if I am working part time and collect unemployment, do the taxes taken from my own check pay my unemployment? Does this make the taxes for my employer higher.
Unemployment is paid solely by the employer...no tax for unemployment comes out of your check. And the more people that collect on that employers unemployment account, the higher their tax rate for unemployment, so yes, your employer will pay a higher tax rate for unemployment if you collect (or anyone else they employed for that matter that is eligible for unemploymnet from their employment with that employer). How much more depends on how long you collect.
How Is Unemployment Insurance Funded
The unemployment insurance system is funded by taxes paid by employers on behalf of their employees. Most of these taxes are collected by state governments, but some are collected by the federal government. While both the federal and state taxes are technically paid by employers (although in a few states, the employee pays part of the state tax), economists generally regard the tax as falling on employees. The theory behind this is that the dollars employers use to pay the tax are part of overall compensation costs, and would otherwise have gone into employees’ paychecks.
The federal tax is set by the Federal Unemployment Tax Act (FUTA), and is equal to 0.8 percent of the first $7,000 paid annually to each employee. This tax is regressive; since most workers earn more than $7,000 per year, most workers are effectively paying the same flat tax of $56 per year regardless of income. The percentage of overall wages paid in FUTA taxes on behalf of high-wage workers is therefore much lower than for low-wage workers.
The revenues raised by the federal tax flow into the federal Unemployment Trust Funds, which contained approximately $20 billion as of September 30, 2003. These funds are maintained in four accounts, each of which has a specific purpose: (1) financing the administrative costs to the states of providing unemployment benefits and offering job location and information services; (2) paying the federal share of the Extended Benefits program; (3) making occasional loans to state unemployment programs that run short of funds; and (4) providing benefits to former federal employees. In addition, Congress can draw on the balances in the federal trust funds to pay for additional temporary federal benefits during recessions. Also, when federal trust fund balances reach a certain high level, additional transfers are automatically made to the states. These are known as “Reed Act” transfers (named after the 1954 legislation establishing this policy), and they go directly into state unemployment trust funds. While states cannot transfer this money out of their trust funds for purposes other than unemployment insurance, they are not required to use it to improve or expand their unemployment insurance benefits.
States generate funding for unemployment insurance through a tax on employers as well. The amount of earnings subject to the tax varies, but in most states, it is less than $10,000. (Due to the caps on taxable earnings, the state unemployment insurance tax is, like the federal tax, regressive.) The tax rate applied to these earnings varies not only by state but also by industry; employers in industries with high turnover (and therefore a greater likelihood that their employees will apply for unemployment benefits at some point) are generally taxed at a higher rate. In 2002, the average rate applied to taxable earnings was 1.8 percent, which was equivalent to an overall tax of only 0.5 percent of total earnings. These revenues flow into state unemployment trust funds, and are used to pay the actual benefits that workers receive under the regular state program, as well as the state share of benefits under the Extended Benefits program.
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