Unemployment tax can be one of the most daunting taxes for many small businesses. Information is scant and it can seem you are at the mercy of the Unemployment Insurance Office in your state to know your rates and when you need to pay, not to mention understanding different regulations and laws. It’s many hoops to jump through but this article will help some light on this mysterious topic.
Unemployment insurance is a joint federal and state program to provide financial assistance for the unemployed. UI was created in the US in the Great Depression to get money into the hands of the unemployed so they could start spending money once again. People unemployed through no fault of their own are able to receive weekly cash benefits for a set period of time while actively looking for a job. It generally covers those who are laid off, but not those who quit.
Unemployment Insurance paid for by a two-part tax at the federal and state level. Generally, it is a tax paid by the employer, but some states have small employee contribution rates. There is a byzantine structure of tax rates that can be difficult to understand.
Benefits for Employees
The benefit for employees is readily apparent. By having a small weekly stipend to cover expenses while looking for a job, the financial shock of a layoff or other job loss is reduced. Employees can continue paying rent or car payments while searching for a new job. This provides not only microeconomic stability but macroeconomic stability as well.
Unemployment benefits vary from state to state. It further varies based on how much income employees earn in their base period. These can range from less than $200 a week to more than $700 a week. These benefits can last up to 26 weeks, but again this depends on the state. Generally, those states with higher tax rates, offer more benefits for employees.
Benefits for Small Businesses
The benefits for small businesses are not as easily seen. Many small businesses treat their employees like family. They care about them and often times the owner is the last one paid when times are tough. Layoffs are not something any small business wants to undertake because they know the turmoil is can cause in their employee’s lives. UI provides a cushion for employees when you have no other choice but to effect a layoff.