Unemployment taxes

Part of the fun of payroll is having to pay taxes in case you have to lay someone off from their position. That way they can still be paid even though they aren't working. These taxes are called, believe it or not, unemployment taxes. The federal and PA governments assess these taxes based on the beginning earnings each year. The federal portion is calculated and on the first $7,000 of earnings. The base rate is 6% but credit is allowed at 5.2% for a net payment of .8%. So, for each employee, you pay .8% on the first $7,000 they earn each year. Obviously, this will take several pays before they reach the $7K limit.

PA Unemployment is similar but it is calculated at a rate assessed or adjusted each year, before the 31st of March, based on previous years' records. If you have a lot of turnover or a lot of layoffs, you will have a higher rate or multiplier to calculate the tax. The PA figure is based on the first $8,000 for each employee.

Be sure to allow for these payments after the close of each quarter to make sure you avoid penalties and to keep your cash flow smooth. The nice thing about these taxes is that although they are significant the first quarter or two each year, they drop off significantly for the remainder of the year. One other point to make about these is that as you acquire new employees throughout the year, the tax starts all over again for them. Even if they earned the base of $7k or $8k working for a previous employer, you still pay the tax on their first $7 or $8k as your employee. If they happen to have two jobs at the same time, the tax is paid by each employer. The IRS and your state revenue department make some serious tax money from people changing jobs during the year or picking up a second job.

Have a good weekend!