Private sector employers pay both federal and state unemployment taxes, which are based on wages paid. The federal tax is 6.0%, which is usually offset by a credit of 5.4% when an employer also pays state unemployment insurance taxes. This reduces the effective federal unemployment tax rate to 0.6%.

When a state's unemployment insurance funds are depleted, which has occurred with greater frequency during the extended recession, a state can borrow from a designated federal loan program. But if the loan is not repaid within two years, the federal government reduces part of the 5.4% credit for businesses in that state, lowering the offset by 0.3%. If the loan is not repaid, an additional 0.3% reduction in the offset can be imposed every year until the loan is fully repaid.

In addition, several states are imposing an interest assessment surcharge (IAS) on employers to help pay the interest due on federal loans to the state unemployment insurance fund. The IAS is generally a "per employee" amount, which is calculated differently by each state. For example, New York has calculated an IAS of $12.75 per employee for the 2013 tax year in order to help pay interest on federal loans to the state's unemployment insurance fund.

Taken together, the reduction in the federal unemployment tax and interest assessment surcharge can  significantly add to a company's unemployment payment obligation. You should be aware of your state's status and whether or not you will be subject to IAS payments.

For more information or guidance on a specific state's status, please