Guide to Unemployment Insurance Taxes

Know the unemployment tax rules and regulations

Generally, employers must pay state and federal unemployment taxes if they have at least one employee working 20 hours a week and pay quarterly wages of at least $1,500.

I recommend: Determine if the laws apply to you at the U.S. Department of Labor.

Register your business

New businesses must register with their state to set up an unemployment insurance employer account for future processing.

I recommend: Locate the right unemployment insurance agency for your region.

Pay taxes, and fill out the forms

The Internal Revenue Service collects the Federal Unemployment Tax Act (FUTA), which is a 6.2 percent tax of the first $7,000 of an employee's wages.

I recommend: Go to the Internal Revenue Service Web site for Form 940, Employer's Annual Unemployment Tax Return.

Don't forget the state

Here's some good news: Businesses can avoid most of their FUTA tax if they can prove payment of state unemployment insurance tax. Prompt payment to the state can reduce the federal tax burden by as much as 90 percent.

I recommend: Check out the U.S. Tax Code for the advantages of tax credits.

Remember: No one-size-fits all

While the federal government sets basic guidelines, each state administers its own unemployment insurance program. As a result, states may have different rules on eligibility, benefits and tax rates.

I recommend: The Department of Labor provides state-specific unemployment insurance rules.