Hired an Employee: Need to Know
Introduction to Unemployment Insurance
Unemployment Insurance is a federally mandated state program financed through employer contributions.
Here’s how it works: Employers pay state and federal unemployment taxes.
- State Unemployment Tax Act (SUTA)
- Employers pay state unemployment taxes on the first $9,500 of each employee’s gross wages per year. The tax rate varies based on the employer’s experience and other factors. These payments are deposited into the Indiana Unemployment Benefit Trust Fund and are used solely for the payment of unemployment benefits to qualifying claimants.
- Federal Unemployment Tax Act (FUTA)
- Employers also pay a federal tax on the first $7,000 of each employee’s gross wages per year. Most employers receive credit for paying state taxes, so the effective federal tax rate is usually lower. DWD only handles SUTA. For more information, please see FUTA’s information here.
- Federal Certifications
- The IRS requires DWD to federally certify each employer’s reports and payments for a particular calendar year if the employer applies for a FUTA tax credit on their IRS Form 940. This certification includes information about the timeliness of payments.
Employees do NOT pay into UI. No money is deducted from employee paychecks for UI benefits in Indiana. Funds are gathered for unemployment through a tax that employers pay based on how much they pay in wages. The tax es collected from employers are deposited into trust funds managed by the state and federal government. These funds are used to pay UI benefits to eligible unemployed workers.
The purpose of UI is to protect society when its workers become unemployed through no fault of their own. The UI program provides short-term compensation to workers who qualify for benefits.
