Everything Employers Need To Know About Paying Unemployment Insurance Taxes In Washington
By David M. Steingold, Contributing Author
If your small business has employees working in Washington, you’ll need to pay Washington unemployment insurance tax. The UI tax funds unemployment compensation programs for eligible employees. In Washington, state UI tax is one of the primary taxes that employers must pay. Unlike most other states, Washington does not have state withholding taxes. However, other important employer taxes, not covered here, include federal UI and withholding taxes.
Different states have different rules and rates for UI taxes. Here are the basic rules for Washington’s UI tax.
What Are Initial Claims
Initial claims are the number of new applications filed by individuals seeking UI benefitsone indication of the health of the job market. In early April 2020, initial claims for UI benefits surged to roughly 6.2 million in a single weektheir largest level on recordbecause some workplaces were shut by lockdown measures put in place to slow the spread of coronavirus. The previous high was 695,000 claims filed the week ending October 2, 1982.
The total number of workers collecting unemployment benefits peaked at 33 million, or roughly one in every five people in the labor force, during the week ending June 20, 2020. This included more than 15 million people who were collecting benefits under pandemic-related expansions of the program. Total continuing claims have declined sharply since then. In the week ending October 2, 2021, they stood at 3.3 million.
Unemployment Insurance Tax Rates
Employers with covered employment must pay quarterly unemployment insurance taxes into the Minnesota Unemployment Insurance Trust Fund. The UI Trust Fund is used solely to pay unemployment benefits.
Your UI tax rate is calculated for your individual business. It is normally calculated and mailed to you in December each year and applies to taxable wages in the following calendar year. Your UI tax rate is based on your employment history and the current balance of the UI Trust Fund.
- New employers: Employers that have only paid wages for a short time are assigned a tax rate based on the average for their industry.
- Experience-rated employers: Employers that have paid wages for long enough to qualify for an experience rating will get an individually-calculated tax rate. This tax rate is determined by dividing the total unemployment benefits paid to former employees by the total taxable wages paid to all their employees.
Your UI tax rate is applied to the taxable wages you pay to your employees. You cannot withhold UI tax from the wages you pay to employees.
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Employer Liability For Unemployment Taxes
In order to fund unemployment compensation benefit programs, employers are subject to federal and state unemployment taxes depending on several factors. These factors include the sums employers pay their employees, the unemployment claims filed against the business, and the type & age of the business.
Employers must pay federal and state unemployment taxes so as to fund the unemployment tax system. Unemployment compensation is intended to pay benefits to workers when they are laid off through no fault of their own.
Is There A Maximum Amount Of Unemployment Benefits Which Can Be Collected
Yes, although weekly benefits are much higher than usual , thanks to UI increases implemented as part of the federal Coronavirus Aid, Relief, and Economic Security Act. Individuals collecting unemployment benefits will receive an extra $600 per week on top of state benefits .
Federal stimulus aside, the maximum amount of UI benefits that can be collected is determined at the state level. States calculate your weekly UI benefit amount by looking at your earnings in the past few quarters before becoming unemployed, typically paying half of your regular wages up to a certain limit. In California, for example, the weekly limit for UI benefits is $450 .
Some states may also offer additional benefits for laid off workers who have dependent children. A local lawyer can help you understand what other benefits may be available to you and your family.
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How Much Does Unemployment Insurance Cost The Company
The unemployment insurance program is almost always funded by employer contributions through the Federal Unemployment Tax Act and State Unemployment Tax Act . These are payroll taxes that are based on a percentage of employees earnings. Most businesses, other than those exempted like nonprofits and religious organizations, must pay these taxes.
While in most states, only the employer pays unemployment taxes, three states also require employee contributions to unemployment insurance: Alaska, New Jersey, and Pennsylvania. In these states, you would withhold and pay the SUTA tax to the state on your workers behalf:
To understand how your payroll taxes are calculated, its important to know how the FUTA and SUTA rates are set.
Employees Vs Independent Contractors
Employees are eligible for unemployment, but independent contractors are not. If you have one job that pays you as an employee and issues a W-2 form and another job that pays you as a contractor and issues a 1099 form, you will be eligible for unemployment from the first job, but not the second. In other words, if you receive both a W-2 and a 1099-MISC, you can still get unemployment benefits based on your W-2 pay.
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Who Pays For Unemployment Insurance
The regular UI program is funded by taxes on employers, including state taxes and the Federal Unemployment Tax Act tax, which is 6 percent of the first $7,000 of each employees wages. However, employers who pay their state unemployment taxes on time receive an offset credit of up to 5.4 percent, meaning that the FUTA tax for an employee earning $7,000 or more may be as little as $42. The credit is reduced in states that are overdue in repaying unemployment insurance debt owed to the U.S. Treasury.
While state spending on UI is not subject to balanced budget rules and states can borrow from the Treasury if they exhaust their reserves, they have to repay the federal government within two to three years, or federal taxes on employers automatically increase until the debt is paid.
States have extensive flexibility in determining benefits. Federal requirements are minimal, while ensuring that all states provide basic protection for eligible workers. States are free to choose the level of employer tax, the benefit level and duration of benefits, and the eligibility criteria, such as the extent and duration of prior employment. There is considerable variation in how states run this program. For instance, while the standard maximum time for which eligible people can collect benefits is 26 weeks, when the COVID-19 crisis began in late February 2020, states like Florida and North Carolina were limiting state-paid benefits to just 12 weeks.
How Long Will Increased Benefits Last
The program applies to workers newly eligible for unemployment benefits in the weeks starting January 27 through December 31, 2020. The extra $600 per week will be paid through July 31, while expanded coverage criteria extend through December 31, 2020.
States vary in how many weeks they offer unemployment benefits, but in all cases the federal government will extend this period by 13 weeks.
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Employer Basics: Unemployment Insurance In Illinois
Many new business that hire the first employee are surprised to learn about all the new expenses that come with him or her. There are FICA taxes to be paid, and workers compensation and unemployment taxes. Of the all the new taxes you get the pleasure of paying, your unemployment tax rate is the only one you can control.
The obligation to pay unemployment taxes in Illinois are triggered by any one of the following:
- The employer pays $1,500 in wages in a single calendar quarter, or employed one or more persons for 20 weeks in a given calendar year or
- The employer pays $1,000 in cash wages in one calendar quarter for domestic work or
- The employer pays $20,000 in cash wages in one calendar quarter or employed 10 or more workers for 20 weeks in a given calendar year for farm work or
- A nonprofit organization acquires four or more employees during each of 20 weeks in a given calendar year or
- A local governmental organization pays any wages at all.
Once you qualify you face numerous obligations. But the issue of interest here is the rate of tax you pay and how a small business with the help of its attorney can control that cost and minimize it..
How is Your Unemployment Tax Calculated
The new employer rate is 3.55% for 2016 . This new employer rate is in effect for three years, but it can increase..
How is the Unemployment Rate Determined
For more information or any questions about unemployment insurance in Illinois, contact Maduff & Maduff today.
What Factors Impact The Cost Of Unemployment Insurance
While the FUTA rate is fixed, your SUTA tax rate is variable and set by the state. To determine this rate, the state considers:
When you first start your business, your states unemployment tax agency will initially assign you a standard new employer rate. After a specified period of time, for example, three years in Massachusetts, the state will assign you a rate based on the two factors we just discussed. The SUTA rate may change every year or even as soon as quarterly in some states like New Hampshire.
To calculate your unemployment tax, you would multiply your SUTA rate by each employees earnings up to the wage limit for your state.
For example, lets say you have an accounting business with 10 employees in New Hampshire, where the taxable wage limit is $14,000 and your tax rate is 5%.
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Filing Form 940 With The Irs
IRS Form 940 is due on January 31 of the year after the year of the report information. For example, the 940 for 2020 is due January 31, 2021. The best way to file by IRS E-file.
The calculations for FUTA tax are complicated. A payroll processing service can help you figure out how much to pay and when.
Wage Base And Tax Rates
UI tax is paid on each employee’s wages up to a maximum annual amount. That amount, known as the taxable wage base, increases slightly every year in Washington. In recent years, it has exceeded $42,000.
The state UI tax rate for new employers, also known as the standard beginning tax rate, also is subject to change from one year to the next. As a new employer, your Washington UI tax rate will depend on what kind of business you’re inor, more technically, what “industry” you’re in. The details are complicated. However, in simple terms:
- industry categories are based on the North American Industry Classification System , and
- the state will calculate your rate based on the NAICS average UI tax rate for your industry.
The NAICS was created by the federal government to classify and analyze statistics for different kinds of businesses. Washington, however, uses the average tax rate for each of these kinds of businesses to assign a UI tax rate to new employers.
Established employers are subject to a lower or higher rate than new employers depending on an “experience rating.” This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits. Minimum and maximum rates for established employers can vary each year, but in recent years they generally have ranged from below .2% to near 6%.
For the most current wage base and tax rate information, check the ESD website.
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Do All The Unemployed Get Ui
No. In ordinary times, most unemployed workers dont receive UI benefits. UI does not cover people who leave their jobs voluntarily, people looking for their first jobs, and people reentering the labor force after leaving voluntarily. Self-employed workers, gig workers, undocumented workers, and students traditionally arent eligible for UI benefits.
In addition, most states require unemployed workers to have worked a minimum amount of time or received a minimum amount of earnings from their previous employer to be eligible. The minimum amount of earnings required to qualify for UI benefits ranged from $1,000 to $5,000 in 2019. Due to differences in eligibility criteria, the UI recipiency ratethe portion of unemployed people who receive UI benefitsvaries significantly across states. In the fourth quarter of 2019, Mississippis 9 percent recipiency rate was the lowest Massachusettss 55 percent rate was the highest.
What did Congress do during the pandemic crisis?
During past recessions, Congress funded additional weeks of UI benefits for those who exhausted their regular state benefits. This time it did more.
The Pandemic Unemployment Assistance program extended benefits to previously ineligible workers, including part-time workers, freelancers, independent contractors, and the self-employed. This provision expired on September 6th, 2021.
Do Employers Have A Responsibility When It Comes To Unemployment Benefits
Employers have a few responsibilities when it comes to unemployment insurance, and the biggest one is financial. Most businesses pay both Federal Unemployment Tax Act taxes and State Unemployment Tax Act taxes, which primarily fund all unemployment programs.
Business owners in every state must pay FUTA taxes. This amounts to 6% of the first $7,000 each employee earns per calendar year, for a maximum annual contribution of $420 per employee. In some cases, you may be eligible to receive some of those payments back later via a tax credit.
As for SUTA, the amount your business will owe depends on the number of employees, how much youve already paid into the unemployment system and how many of your former employees have claimed benefits.
Another rule that could affect you, especially if you have remote employees, is that companies must pay state unemployment taxes to every state in which their employees work. To find out the rules surrounding a given states unemployment taxes, contact that states government labor office.
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Whats Happens When An Employee Files An Unemployment Claim
Its bound to happen sooner or later: An employee leaves the company, and a few weeks later you receive a notice from the state saying the employee has filed an unemployment claim. Now what?
First things first: Determine if the former employees claim is valid. If you fired them for cause or they voluntarily left the company, you can contest the claim. If they were terminated because of a situation out of their control, such as a layoff, you can accept the claim. If you accept the claim, you can either indicate that or simply do nothing and the claim will be considered accepted.
If you contest the claim, however, youve got a bit of time and effort ahead of you. Youll have to respond to the state unemployment department before the deadline on the claim . If you dont respond by the deadline, you could get hit with a higher tax rate and penalties. Include details such as the employees compensation, occupation, and employment dates, in addition to detailing exactly why the employee was terminated. Having comprehensive records in their employment file is critical to successfully winning a claim.
But the work may not be over yet. If you contest the claim and the state determines that you are in the right, the former employee can still appeal the decision. In this case, the state unemployment office will conduct a telephone hearing between your company and the terminated employee .
File Quarterly Ui Tax Reports And Payments
In Washington, UI tax reports and payments are due by the last day of the month following the last day of each quarter. In other words:
- 1st Quarter reports and payments due on or before April 30
- 2nd Quarter reports and payments due on or before July 31
- 3rd Quarter reports and payments due on or before October 31, and
- 4th Quarter reports and payments due on or before January 31.
If the due date falls on a weekend or state holiday, a report and payment may be postmarked the following business day.
You can file your reports and payments online or on paper. To file online, you can use either the Employer Account Management Services system or the UIWeb Tax system. Each of the latter two systems has different options for more details, check the Employer Taxes section of the ESD website.
To file on paper, you must use the ESD’s original forms, because they use a unique ink that allows them to be scanned into the ESD’s computer system. To obtain forms, you’ll need to contact the ESD by phone or email. You can find more information by going to the Paper Tax Forms page on the ESD website.
You can pay your taxes online using the ESD’s ePay system. You can also mail in your check with a payment voucher that’s available by contacting the ESD.
As long as your account has an Active Status with the ESD, you are required to file a Quarterly Tax and Wage Report, even if you only file a No-Payroll report. You will be subject to a penalty if you fail to file.
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How Does Unemployment Insurance Work And How Is It Changing During The Coronavirus Pandemic
Unemployment insurance was a major element of the U.S. governments response to the economic dislocation caused by the COVID-19 pandemic. The Coronavirus Aid, Relief, and Economic Security Act, enacted in March 2020, expanded the unemployment insurance system to provide relief to those who were out of work. Subsequent legislation extended these benefits until September 6, 2021.