Reply #8: employers' portion = part of employee compensation & contributions are deductible [View All]

[Hannah Bell]

from employers' income tax.

Pursuant to the provisions of the FUTA, a federal tax is levied on covered employers at a current rate of 6.2 percent on wages up to $7,000 a year paid to an employee. The law, however, provides a credit against federal tax liability of up to 5.4 percent to employers who pay state taxes timely under an approved state UC program. This credit is allowed regardless of the amount of the tax paid to the state by the employer. Accordingly, in states meeting the specified requirements, employers pay an effective federal tax of 0.8 percent, or a maximum $56 per covered employee, per year. Under current law, the 6.2 percent federal tax is scheduled to drop to 6.0 percent beginning with calendar year 2010, and the effective tax to 0.6 percent.


State Taxable Wage Base and Rates

Forty-six states have adopted a higher taxable wage base than the $7,000 now provided in FUTA. For 2010, Washington’s taxable wage base is the highest at $36,800. In all states, an employer pays a tax on wages paid to each worker within a calendar year up to the amount specified in state law. In addition, most of the states provide an automatic adjustment of the wage base if federal law is amended to apply to a higher wage base than that specified under state law.

As a result of the many variables in states taxable wage bases and rates, benefit formulas, and economic conditions, actual tax rates vary greatly among the states and among individual employers within a state. For the latest year available (2009), the preliminary estimated U.S. average tax rate is 0.6 percent of total wages, ranging from a high of 1.3 percent in Rhode Island (taxable wage base of $18,000) to a low of 0.08 percent in the Virgin Islands (taxable wage base of $22,100).

http://workforcesecurity.doleta.gov/unemploy/pdf/partnership.pdf