State unemployment insurance is an important lifeline for millions of families across the country. The money to pay for this insurance is provided by employers, and the state governments administer the programs. Most companies don’t think about state unemployment insurance because they simply outsource the calculation and payment to a third-party provider, typically a payroll processing company. While you may not calculate it yourself, it’s still important to understand how it works because some simple planning can save your company tens, or hundreds, of thousands of dollars in unnecessary insurance payments.
Calculating state unemployment insurance rates
The table below contains summary information from the 50 states and the District of Columbia with respect to state unemployment insurance rates. The table is accurate as of the end of January 2011. It’s important to check with your payroll provider or state government to determine how changing laws may impact your company’s unemployment insurance bill.
The taxable wage base
The taxable wage base represents the portion of each employee’s payroll that is used to calculate the state unemployment insurance tax that is due. The Federal Unemployment Tax Act requires that this taxable wage base be a minimum of $7,000 per employee. As the table indicates, only three states are at the minimum. Florida is also expected to increase the taxable wage base to $8,500 in 2012.
State unemployment insurance rate
The taxable wage base is then multiplied by the state unemployment insurance rate to determine actual tax due. Here is where things can get tricky. The rate to be used varies according to a number of factors:
- If your company is in a certain industry, the rate will be different. Companies in the construction industry, for example, pay a much higher rate in Delaware, Illinois, Iowa, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Pennsylvania, South Dakota, Virginia, Washington, West Virginia, and Wisconsin.
- If your company is a new employer, the rate will also vary. If a company has former employees collecting (or that have collected) unemployment for being fired (for eligible reasons) or laid off during the previous year, the rate paid will be different than the rate for companies that are just starting to pay into the system and have no employees collecting.
- If your company has a large payroll, the rate will vary. A company’s aggregate payroll is also a factor that is used to consider the state unemployment insurance rate to be used.
The table below indicates the minimum new employer rate, the minimum rate, and the maximum rate for companies that are not considered new employers. Bookmark this article and use it as a reference guide.
| State | Taxable wage base | Minimum new employer rate | Minimum rate | Maximum rate |
| Alabama | $8,000 | 2.70% | 2.15% | 8.30% |
| Alaska | $34,600 | 2.63% | 1.00% | 5.40% |
| Arizona | $7,000 | 2.00% | 0.02% | 5.86% |
| Arkansas | $12,000 | 3.80% | 0.90% | 10.80% |
| California | $7,000 | 3.40% | 1.50% | 6.20% |
| Colorado | $10,000 | 1.70% | 1.00% | 5.40% |
| Connecticut | $15,000 | 2.90% | 1.90% | 6.80% |
| Delaware | $10,500 | 3.10% | 0.30% | 8.20% |
| Florida | $7,000 | 2.70% | 1.03% | 5.40% |
| Georgia | $8,500 | 2.62% | 0.03% | 7.29% |
| Hawaii | $34,200 | 4.00% | 1.20% | 5.40% |
| Idaho | $33,300 | 3.36% | 0.96% | 6.80% |
| Illinois | $12,740 | 3.80% | 0.70% | 8.40% |
| Indiana | $9,500 | 2.50% | 0.70% | 9.50% |
| Iowa | $24,700 | 1.90% | 0.00% | 9.00% |
| Kansas | $8,000 | 4% | 0.11% | 7.40% |
| Kentucky | $8,000 | 2.70% | 1.00% | 10.00% |
| Louisiana | $7,700 | 1.30-3.45% | 0.11% | 6.20% |
| Maine | $12,000 | 3.02% | 0.86% | 7.95% |
| Maryland | $8,500 | 2.6%-13.3%* | 2.20% | 13.50% |
| Massachusetts | $14,000 | 2.83 | 1.26% | 12.27% |
| Michigan | $9,000 | 2.7 | 0.06% | 10.30% |
| Minnesota | $27,000 | 2.91 | 0.50% | 9.40% |
| Mississippi | $14,000 | 0.70% | 0.20% | 5.40% |
| Missouri | $13,000 | 3.51 | 0.00% | 7.80% |
| Montana | $26,300 | 1.8 | 0.82% | 6.12% |
| Nebraska | $9,000 | 2.5 | 0.00% | 8.66% |
| Nevada | $26,600 | 2.95% | 0.25% | 5.40% |
| New Hampshire | $12,000 | 3.50% | 0.10% | 7.00% |
| New Jersey | $29,600 | 2.68% | 0.38% | 5.68% |
| New Mexico | $21,900 | 2.00% | 0.05% | 5.40% |
| New York | $8,500 | 4.10% | 1.50% | 9.90% |
| North Carolina | $19,700 | 1.20% | 0.00% | 6.84% |
| North Dakota | $25,500 | 1.37% | 0.20% | 10.00% |
| Ohio | $9,000 | 2.70% | 0.70% | 12.00% |
| Oklahoma | $18,600 | 1.00% | 0.30% | 9.20% |
| Oregon | $32,300 | 3.30% | 2.20% | 5.40% |
| Pennsylvania | $8,000 | 3.703 | 2.68% | 14.00% |
| Rhode Island | $19,000 | 2.46% | 1.69% | 9.79% |
| South Carolina | $10,000 | 2.67% | 0.00% | 10.67% |
| South Dakota | $11,000 | 1% | 0.00% | 9.50% |
| Tennessee | $9,000 | 2.70% | 1.10% | 10.60% |
| Texas | $9,000 | 2.70% | 0.78% | 8.25% |
| Utah | $28,600 | 1.80% | 0.40% | 9.40% |
| Vermont | $13,000 | 1.00% | 1.30% | 8.40% |
| Virginia | $8,000 | 2.98% | 0.58% | 6.68% |
| Washington | $37,300 | 1% | 1.36% | 6.03% |
| West Virginia | $12,000 | 2.70% | 1.50% | 8.50% |
| Wisconsin | $13,000 | 3.60% | 0.27% | 9.80% |
| Wyoming | $22,300 | 2.50% | 0.67% | 10.00% |
| Washington, D.C. | $9,000 | 2.70% | 1.60% | 7.00% |
Taxes on the way up?
Many states have seen their unemployment insurance funds dwindle to dangerous levels. As more people stay unemployed longer and companies hire less, the funds are receiving more and spending less. There are only so many options available to replenish these funds and it is increasingly likely that states will raise both the base wage and the range of rates used to calculate the tax due.
Want more tax tips? Check these stories out:
Simple steps you can take to manage your state unemployment taxes
Ensuring proper human resources and accounting procedures are in place can go a long way toward protecting your company against unnecessary increases in unemployment taxes.
First, plan your hiring and your layoffs efficiently
Many companies lay off employees because business is slow, only to have to rehire again a short time later. When determining the net financial cost of employee terminations, include the cost of potential increases in state unemployment insurance. Employee churn is expensive for many reasons. But many companies forget to include the impact on state unemployment insurance.
Second, maintain good records on employee conduct
If an employee is fired for certain reasons (stealing from petty cash for example), they are not eligible to collect unemployment insurance. However, they may still try to do so. Ensure that your company maintains accurate records on employee performance and reasons for termination.
Third, be careful with misclassification
As I’ve written about previously, misclassifying employees as independent contractors can lead to the payment of fines and penalties including some related to state unemployment insurance.
Mike Periu is the founder of EcoFin Media, LLC which develops financial training, financial education, entrepreneurship training and more to small business owners on television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Post your questions in the comments of this article.