If you’ve recently hired a household employee, you’re likely aware you have employment tax obligations. One crucial and often overlooked responsibility, in addition to social security and Medicare taxes, is paying Federal and State Unemployment Insurance taxes. This benefit program can be confusing, but we’ll explain the essential details.
What is Unemployment Insurance?
Unemployment insurance, often known as “unemployment benefits,” is a state-provided safety net for individuals who lose their jobs and meet specific eligibility criteria, such as having a prior work history and actively seeking new employment. Employees terminated for cause or who resign voluntarily are generally ineligible for these benefits. Depending on the state, benefits typically last up to 26 weeks.
How Much Does Unemployment Insurance Tax Cost an Employer?
The cost of unemployment insurance tax varies based on several factors. Each year, your state will send you a tax rate notice indicating how much you need to pay. Generally, the tax rate starts at around 2.5% of the gross wages paid to each employee, up to a certain wage cap. Wages exceeding this cap for each employee are not subject to the tax.
For employers with more than two years of “experience,” the tax rate may adjust based on your employment and claim history. Rates typically decrease if fewer former employees file claims. Employers usually pay unemployment taxes quarterly.
Is Unemployment Insurance Required?
Yes, unemployment insurance tax is mandatory. Paying your employee under the table means you won’t contribute to the fund. Consequently, your employee may be put on the spot if they file a claim, having to out you, their former employer, to authorities to receive benefits.
Employees are legally entitled to these benefits. If you fail to pay the necessary taxes, the state and IRS will contact you about the missed filings. You could face significant back taxes, interest, and penalties. This can be a costly mistake and can delay the process for your employee to receive their rightful benefits.
Why Paying Your Nanny Legally is Important
Paying your nanny or any household employee legally is always the right choice. It not only ensures your employee is covered if they lose their job through no fault of their own, but it also protects you from potential legal and financial consequences of tax evasion. Suppose you’re unsure how to handle new hire paperwork or understand your state-specific requirements. We offer free detailed tip sheets to guide you through the process and personalized complimentary consultations.
Managing payroll and tax withholdings can be overwhelming, but you don’t have to do it alone. Our experts at HomeWork Solutions are here to help!
How do you know you can trust HWS? Since 1993, we’ve been the friendly face of household payroll and tax compliance, providing reliable and personal service to household employers nationwide. Our expertise is something you can count on. Contact our team of specialists today at 800-626-4829 to get started. Let us handle your household payroll and tax needs so you can focus on what matters most: your family.