UNEMPLOYMENT INSURANCE - WHAT HAPPENS IF EMPLOYER DOES NOT PAY TAXES

For further information about the tax benefit loss to Employers for not paying UI taxes, this information is from the DOL website:

"Federal Unemployment Tax Act (FUTA)

You can take advantage of the FUTA (Federal Unemployment Tax Act) credit by paying your New York State Unemployment Insurance Tax in a timely manner. You can obtain a 5.4% credit against your annual Federal Unemployment Tax, using Form 940 or 940EZ, if you pay your state tax for the year by the 31st of the January following the close of the taxable year. This is the date the FUTA return is due. If you pay the state tax after January 31, the credit will be limited to 90% of the amount you could have received if you had paid on time.

If you do not pay the state tax, you cannot take credit against your federal tax, and you will be required to pay the full FUTA tax of 6.2%. Employers often assume that once they pay the FUTA tax at 6.2% they don't have to pay the State tax. However, this is not true. The state tax must also be paid. If your payments are late, the IRS will require you to obtain a Proof of Credit, form 940C, from the state to show that your state taxes have been paid. At that time you may apply to the IRS for your FUTA credit. For additional information regarding Proof of Credit, please call the Employer Account Adjustment Section."