If you recently hired a household employee, you know that you have employment tax obligations. One of those is to pay Federal and State Unemployment Insurance tax. This benefit program is confusing to most, so here we will break down some essential things to know about it.
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What is unemployment insurance?
Unemployment insurance, sometimes known as unemployment benefits, is state-provided insurance provided to an individual if they lose their job and meet specific eligibility requirements, such as prior work history and continued search for employment. Employees fired for cause or who quit their job are not eligible to claim unemployment benefits. Benefits usually last up to 26 weeks, depending on the state where the employee worked.
How much does unemployment insurance tax cost?
The amount you pay as an employer depends on a few things. Your state will provide information via a tax rate notice every year that will allow you to determine how much in taxes you will be required to pay. Usually, the tax rate starts around 2.5% of the gross wages paid to each employee, subject to a wage cap. Wages paid to each employee in excess of this cap are not taxed. Experienced employers (>2 years are assigned a tax rate based on past employment and claim history, with rates declining so long as you do not have former employees are not filing claims. Most of the time, employers pay unemployment taxes quarterly. Our payroll calculator can help get you started, then our team at HomeWork Solutions can help get all the tax details rolling after that for you, so you don’t need to lift a finger.
Is unemployment insurance required?
Yes. If you pay your employee on the books, this tax must be paid. If you choose to pay your employee illegally or under the table, you will not be paying the taxes that fund employment benefits. Consequently, your employee may not qualify for unemployment benefits immediately if they file a claim. However, the employee is still entitled to this benefit by law. The state and IRS will likely find out you have not been paying your employer-related taxes, and you could be required to pay all of the taxes you owe, in addition to interest or other penalties/fines. Failing to pay your required taxes could be a very costly mistake, and it will hold up the process for your employee to receive the benefits they deserve.
Paying your nanny legally is always worth it! It not only guarantees your employee will be covered if they lose their job for no fault of their own, but it also ensures you don’t need to worry about being caught for tax evasion. If you aren’t sure how to start the various new hire paperwork that comes with bringing on a new household employee, we offer state-specific tip sheets to help you understand what actions you need to take and what you’re required to withhold and pay. If the thought of figuring out payroll and tax withholding seems overwhelming, or you don’t have time to manage this, our experts can help!
We have been helping household employers around the country since 1993. Our expertise and knowledge are something you can count on! Contact our team of specialists today at 800-626-4829 for more details on getting started.