In Pennsylvania, unemployment compensation is funded by three streams: a state unemployment tax paid by employers each quarter, a federal unemployment tax (FUTA) paid by employers once a year, and a small 0.07% withholding taken from every employee’s paycheck. Employers carry most of the cost. Workers contribute only the withholding, and Pennsylvania is one of just three states — along with Alaska and New Jersey — that collects anything at all from employees for unemployment.
What Employers Pay to the State
Every covered Pennsylvania employer pays quarterly contributions on the first $10,000 of each worker’s wages per calendar year.1Commonwealth of Pennsylvania. Yearly Tax Highlights Once an employee’s year-to-date earnings pass $10,000, the employer owes no more state unemployment tax on that person until the next year.
The percentage each employer pays is not uniform. It depends on the employer’s experience rating, which tracks how many former employees have drawn benefits against that employer’s account. A business with few layoffs builds a healthier reserve and earns a lower rate. A business with heavy turnover pays more. For 2026, the minimum experience-based contribution rate is 1.419%, and the maximum is 10.3734%.1Commonwealth of Pennsylvania. Yearly Tax Highlights Those endpoints already include the surcharges and add-on factors described below.
Rates for New Employers
A business too new to have an experience rating gets a standard new employer rate. For 2026, non-construction employers pay 3.822%, and newly liable construction employers pay 10.5924%.2Commonwealth of Pennsylvania. UC-820 New Employer Contribution Rates Construction employers start higher because the industry has historically produced more claims. After the business builds up enough history, the state recalculates its rate from actual claim experience.
Surcharges and Add-On Factors Built Into the Rate
The number on an employer’s annual rate notice is not just the basic experience rate. Pennsylvania layers several components on top:
- A 9.2% surcharge on the basic contribution rate for 2026, applied to all employers.1Commonwealth of Pennsylvania. Yearly Tax Highlights
- An additional contributions tax of 0.60%, added after the surcharge calculation, applied to all employers except newly liable ones (unless they also have a delinquency increase).1Commonwealth of Pennsylvania. Yearly Tax Highlights
- An interest factor used to repay federal loans. For 2026, it is 0.00%, because Pennsylvania has no outstanding federal unemployment loans.1Commonwealth of Pennsylvania. Yearly Tax Highlights
- A state adjustment factor set by law at 0.75% for 2026, built into the basic rate formula.3Pennsylvania Department of Labor & Industry. Contribution Rate Chart UC-749
Only the portions credited to the employer’s own reserve account improve its experience rating over time. The interest factor, for example, pays down fund obligations and does nothing for the employer’s reserve balance.
When State UC Contributions Are Due
State UC reports and payments are due at the end of the month following each calendar quarter: April 30, July 31, October 31, and January 31. If a due date falls on a weekend or holiday, the deadline shifts to the next business day.4Commonwealth of Pennsylvania. File Unemployment Compensation Quarterly Wage/Tax Reports The employer’s own contributions and the employee withholdings collected during the quarter are remitted together.
What Employees Pay: The 0.07% Withholding
Most states fund unemployment entirely through employer taxes. Pennsylvania does not. Every covered worker in the state has 0.07% of gross wages withheld from each paycheck, with no cap on the wages subject to the tax.5Pennsylvania Department of Labor & Industry. Contribution Rate Chart UC-749 On a $60,000 salary, that comes to $42 for the whole year. It is small enough that many workers never notice it.
Employers handle the mechanics. They deduct 0.07% from each paycheck and send it to the Department of Labor and Industry alongside their own quarterly contributions. The withholding should appear on your pay stub, often labeled “UC” or “SUI-EE.” These employee dollars go directly into the compensation fund to pay benefits, not toward administrative costs.
Alaska and New Jersey are the only other states with a similar employee-side unemployment tax. Everywhere else, employers carry the entire state unemployment load.
What Employers Pay to the Federal Government (FUTA)
On top of state taxes, Pennsylvania employers owe federal unemployment tax under FUTA. The statutory rate is 6.0% on the first $7,000 of each employee’s annual wages.6Internal Revenue Service. Topic No. 759, Form 940 – FUTA Tax Return Employers who pay their state unemployment taxes on time receive a 5.4% credit, which drops the effective FUTA rate to 0.6%. That works out to a maximum of $42 per employee per year.
FUTA revenue does something different from state contributions. It funds the administrative machinery behind unemployment programs at both state and federal levels, finances half the cost of extended benefits during high-unemployment periods, and backs the federal loan program that states tap when their trust funds run dry.7Employment & Training Administration – U.S. Department of Labor. Unemployment Insurance Tax Topic Employees never pay FUTA. If a FUTA line appears on your pay stub as a deduction, something is wrong.
FUTA Credit Reductions
States that borrow from the federal government to cover unemployment benefits and fail to repay within two years face a FUTA credit reduction. Employers in those states lose part of the 5.4% credit and owe more federal tax. For 2025, California faced a 1.2% credit reduction and the U.S. Virgin Islands faced a 4.5% reduction.8Federal Register. Notice of the FUTA Credit Reductions Applicable for 2025 Pennsylvania is not currently subject to any credit reduction, so PA employers keep the full 5.4% credit and pay the standard 0.6% effective rate.
Nonprofits and Government Employers Can Pay a Different Way
Not every employer pays through standard quarterly rates. Political subdivisions and organizations exempt under Section 501(c)(3) of the Internal Revenue Code can elect to become “reimbursable employers.”9Commonwealth of Pennsylvania. Reimbursable Employers Under that method, the employer reimburses the UC Fund dollar-for-dollar for benefits actually paid to its former workers, instead of paying a percentage of wages each quarter.
The trade-off is simple. Standard contributions are predictable but may exceed what the employer’s former workers actually collect. Reimbursement tracks actual claims exactly, which works well for stable organizations with low turnover, but a single large layoff event can produce a reimbursement bill much larger than the equivalent quarterly tax. Nonprofits on the reimbursable method cover all regular benefits charged to their account and half the cost of any extended benefits. Political subdivisions cover the full amount of both.9Commonwealth of Pennsylvania. Reimbursable Employers
Who Doesn’t Pay: Independent Contractors
Employers owe UC taxes only on workers properly classified as employees. Independent contractors (1099 workers) are not covered by the unemployment system. No employer contribution, no employee withholding, and no eligibility for benefits if the work dries up.
The IRS looks at three categories when deciding whether a worker is an employee or a contractor: behavioral control (does the business direct how the work is done?), financial control (does the business control the economic side, like reimbursement and tools?), and the nature of the relationship (is there a contract, benefits, or an expectation of ongoing work?).10Internal Revenue Service. Worker Classification 101: Employee or Independent Contractor Pennsylvania applies its own test under the UC Law, and the state’s definition of “employment” is broad. If the state reclassifies contractors as employees, the business owes back UC taxes, penalties, and interest on every dollar that should have been paid.
Where the Money Goes
All employer contributions, employee withholdings, and surcharges flow into the Pennsylvania Unemployment Compensation Trust Fund, a federally held account administered by the Department of Labor and Industry. The money exists for one purpose: paying benefits to eligible workers who lose their jobs. It cannot be diverted to roads, schools, or the state’s general budget.
Fund health drives what employers pay year to year. Pennsylvania’s trust fund was insolvent for long stretches, forcing the state to borrow billions from the federal government during the Great Recession and again during the pandemic. Those loans carried interest that employers repaid through surcharges on their rates. As of mid-2026, the fund is projected to hold roughly $2.15 billion with a solvency ratio of about 120% and no outstanding federal loans.11Commonwealth of Pennsylvania. Actuarial Evaluation 2025 That is why the 2026 interest factor sits at 0.00%. If the fund drops again in a future recession, Pennsylvania can borrow under Title XII of the Social Security Act, and the loans get repaid through temporary increases in employer tax rates.