The idea behind Unemployment Insurance (UI) is simple: to provide temporary assistance to those who are out of work so they can meet their basic financial needs while looking for a job. The federal-state UI program is financed through employer payroll taxes. Anyone can file for UI benefits, but individuals must qualify for benefits under general federal guidelines and specific state rules.
The cost of the unemployment insurance program is financed by employers who pay state and federal taxes on part of the wages paid to each employee in a calendar year.
The federal employment tax that employers pay to the Internal Revenue Service (IRS) finances the administrative costs of state unemployment and job service programs, as well as the federal share of programs that provide for extensions of the payment of benefits to unemployed workers, and the provision of repayable federal loans to states who have depleted their benefit accounts. The federal employment tax is legislated by the Federal Unemployment Tax Act and is known as the FUTA tax.
Employers who submit state tax reports and pay state tax contributions on a timely basis, receive, from the IRS, a 90 percent offset credit against the federal employment tax that they owe. Employers who receive the offset credit currently pay a federal employment tax of .8 percent, instead of 6.2 percent, of the first $7,000 they pay to each employee in a calendar year.
© 2011 Louisiana Workforce Commission