If you have employees, you’ll need to pay unemployment insurance (UI) taxes for your business. This tax is enacted at the federal level through the Federal Unemployment Tax Act (FUTA), and at the state level as State Unemployment Insurance (SUI).
How do I register to pay UI taxes?
Every business with employees must register with the state agency in their state that handles employment. In Washington, for example, this is the Employment Security Department. In Maine, it’s the Department of Labor. (You can find a full list of state departments through the U.S. Department of Labor.) Registering your business at the state level is necessary for filing state wage reports, as well as paying your payroll taxes, which includes unemployment insurance.
Federal unemployment taxes are paid using your EIN (and Form 940) when you file taxes with the IRS.
Why do I need to pay UI taxes?
FUTA was created in the wake of the Great Depression, as Americans struggled to get back to work. The legislation created federal and state-level programs to distribute payments to workers who lost their jobs and were deemed eligible for short-term benefits. In most states, employers are responsible for contributing to this fund—although three states (Alaska, New Jersey and Pennsylvania) require employees to contribute, as well.
Can I get out of paying UI taxes?
No. Even small businesses are required to pay both FUTA and SUI taxes. However, unemployment tax rates are not consistent across the board. What you pay depends on the state you do business in, as well as the number of former employees who have filed unemployment claims.