Liability Under the Federal Unemployment Tax Act

The Federal Unemployment Tax Act imposes on every employer an excise tax of 6.2 percent (percentage may change from year to year) of the total wages paid by him during a calendar year with respect to employment. Under the Federal Act, the employer is allowed credit against the Federal tax in the amount of contributions paid by him into the unemployment fund under a state unemployment insurance law. This means that an employer’s Federal unemployment tax rate will be 0.8 percent of the total wages paid by him for employment; provided, he has paid contributions to the South Carolina Employment Security Commission as required under the South Carolina Employment Security Law.

In South Carolina, the normal tax rate for a new employer under the South Carolina Employment Security Law is 2.64 percent of the total taxable wages paid by him for employment. After twenty-four consecutive months have elapsed, the employer may have his State tax rate reduced based on certain factors. If the employer’s State tax rate for contribution purposes is reduced below 2.64 percent, his Federal excise tax will continue to be paid at a rate of 0.8 percent.