Experience Tax Rate Law and Legal Definition

Experience tax rate refers to a method for determining the contribution rates of individual employers according to the factors specified in the state unemployment compensation code for measuring an employer's experience with respect to unemployment. The state unemployment insurance tax rate that is based on the amount of unemployment benefits paid out as a percent of total wages. The experience rate is designed to ensure that an employer has sufficient funds to cover future unemployment disbursements.

After an employer has met the state's merit rating requirements, an experience rate is assigned. Depending on the state, an employers eligibility for experience rating is based on the number of years it has been subject to paying taxes for unemployment benefits and/or liable for unemployment taxes. State laws vary, so local law should be consulted to detrmine applicable requirements.