For Blacks: Unemployment Tax, Why You Get Paid So Little

How Unemployment Tax Works

The Federal Unemployment Tax Act (FUTA), with state unemployment systems, provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a Federal and a state unemployment tax. A list of state unemployment tax agencies, including addresses and phone numbers, is available in Publication 926, Household Employer’s Tax Guide. Only the employer pays FUTA tax; it is not deducted from the employee’s wages. – IRS.gov

Unemployment Tax

The Federal Unemployment Tax Act (or FUTA, 26 U.S.C. ch. 23) is a United States federal law that imposes a federal employer tax used to fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. In some cases, the employer is required to pay the tax in installments during the tax year.

FUTA covers the costs of administering the unemployment insurance (UI) and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

For years through December 31, 2009, the FUTA imposes a 6.2% tax (before credits) on the first $7,000 of gross earnings of each worker per year. Once the worker’s earnings reach $7,000 during a given year, the employer no longer pays any Federal unemployment tax for that year with respect to that worker. Certain credits are allowed with respect to state unemployment taxes paid that may reduce the effective rate to 0.8%.

The following wages are exempt from Federal Unemployment Tax Act payments.

  • Wages for services performed outside the United States.
  • Wages paid to a deceased employee or a deceased employee’s estate in any year after the year of the employee’s death.
  • Wages paid by a parent to a child under age 21, paid by a child to a parent, or paid by one spouse to the other spouse.
  • Wages paid by a foreign government or international organization.
  • Wages paid by a state or local government or by the United States federal government.
  • Wages paid by a hospital to interns.
  • Wages paid to newspaper carriers under age 18.
  • Wages paid by a school to a student of the school.
  • Wages paid by an organized camp to a student.
  • Wages paid by non-profit organizations.

What This Means to You

Unemployment Tax
So what this is all saying is that out of $7,000 every year, you make 6.25% less.  Let’s add this on to my prior article about payroll tax paid by both you and your employer of 28.8% – Total: 35.05% you are not paid.  Every single year of your life, that you work for someone else, your employer pays into the FUTA insurance instead of paying you.
Are you getting the message that working for someone else, is a losing battle? What’s worse, is that in a state where you have to pay state income tax, all of this is doubled, regardless of what you read by the IRS.  A state can, and most often does, tax the employer for both federal and state unemployment tax purposes.  Which means that 6.25% is now ballooned to 12.5%.  That is 12.5% that you will never see on your paycheck, along with the other taxes that are taken away from before you even get the check.  While we complain about low wages, the true enemy is the federal government.  Our current system robs you directly of your hard earned money, before you even get a chance to see it.  In fact, your salary is reduced before you even get the job.  The employer plays a balancing act of hiring you for and end result wage, versus what he has to pay for you.  That means, instead of paying you $20 or $30 an hour, a cool 40% of that goes the the government, and then you see $12, of which, at the bottom line you might see net minimum wage.  From $20 an hour, you would end up taking home $8 an hour.  You are being robbed by the government daily, and don’t even realize it.
Remember, this is only if you work for someone else, as their employee.  If you own your own business, nearly none of this applies to you.  In fact, it would be wise of you, and your family, to live on ramen noodles and water for 5 years, and save all your money, just so you could go into business for yourselves.  You’re a fool, if after reading this you ignore this and continue working for someone else.  Think of everything you want to accomplish in life.  It is not accomplished by working for someone else, making them wealthy.  The American Dream™ is not accomplished by paycheck to paycheck, it’s done by opening up your own shop and selling, one client at a time.

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shakaama

Ex law school student. I was kicked out for revealing I had a heart actually beating inside. I used to be in a modern dance company. I'm working on my 7 miracles to be proclaimed a saint by the pope. #1 is really hard, but once i get over that hump the other 6 will be a cinch.

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