How is unemployment tax calculated?

Unemployment tax is calculated as a percentage of each employee’s wages, subject to a wage base limit. This means that only the wages up to a certain amount, set by the state or federal government, are considered for the unemployment tax calculations. Employers pay this tax to fund unemployment insurance programs, which provide temporary financial assistance to employees who lose their jobs through no fault of their own.

The percentage can vary by state and may also depend on the employer's history of unemployment claims filed against them, known as experience rating. By measuring contributions based on individual employee wages rather than a flat fee or solely depending on profit, the system ensures that there is a more equitable and sustainable funding mechanism for unemployment benefits.