You have certain payroll tax responsibilities as a small employer, including paying (and, in some states, withholding) unemployment taxes.
Are you staying in compliance? What happens if you aren’t, and how can a payroll provider help you fix these mistakes? Let’s talk about it!
At CSI Accounting & Payroll, we’ve worked with small business taxes for over 50 years. That means we’ve gotten a lot of questions about unemployment taxes, including:
- Do employers pay unemployment taxes? What happens if they don’t?
- Do employees pay unemployment taxes? What happens if the taxes aren’t withheld?
- How can a payroll service help fix these mistakes?
Employers’ Unemployment Tax Responsibilities
In the United States, all employers must pay federal and state unemployment taxes. Their business pays into unemployment, which any of their former employees can draw from if they’re eligible for those benefits.
Consequences of Non-Compliance
If businesses fail to pay, they will get letters from the taxing authority, then penalties and interest tacked on. This can also lead to higher unemployment tax rates.
If you’re in this situation, a payroll professional can help you. We’ll talk about that later on in this article.
Employees’ Unemployment Tax Responsibilities
Some employees also pay unemployment taxes. In Alaska, New Jersey, and Pennsylvania, employers and the workers pay state unemployment taxes.
This is done through payroll withholding by employers, so technically the responsibility does not fall on the employees to ensure they get paid.
What if someone lives and works in different states, or what if they’re a multi-state employee? If one of those states is Alaska, New Jersey, or Pennsylvania, you will need to find the state where the unemployment tax is paid. This is done by considering these four factors in this order:
- Localization of service
- Base of operations
- Direction and control
- Residence
Consequences of Non-Compliance
What happens if employers in Alaska, New Jersey, and Pennsylvania don’t withhold unemployment taxes from employees’ wages? Then the employer is on the hook to pay the employee’s missed portion. The employee is under no legal obligation to pay for the employer’s mistake.
However, a payroll professional can advise other options. We’ll talk about them in the following section.
Payroll Services Fixing Missed Unemployment Taxes
Accidental payroll mismanagement can lead to costly mistakes. A payroll specialist can help you fix these mistakes and prevent future ones, which may be in the best interest of your business.
Here’s how payroll specialists can help you with failure to pay and failure to withhold.
Fixing Failure to Pay
If you haven’t been paying your employer portion of unemployment taxes, then you owe payroll back taxes.
Learn how a payroll specialist can help you pay missed payroll taxes and fix records and returns here.
Fixing Failure to Withhold
If you owe unemployment taxes in Alaska, New Jersey, or Pennsylvania and haven’t been withholding your employees’ unemployment taxes from their wages, then you’re required to pay them on the employee’s behalf.
A payroll specialist can advise you on this process. Otherwise, they may suggest another option: back withholding. This means if the employee agrees and signs off on it (and if it follows your state laws), your payroll specialist can withhold extra on their future checks to collect the unpaid taxes. This is often done over time in very small amounts, which may be tolerable to the employee.
Stay in Compliance With Payroll Taxes
As an employer, failing to pay and withhold (in applicable states) state unemployment taxes can indicate a serious issue with your payroll. Payroll seems simple – until it’s not.
Now that you know about employers’ and employees’ responsibilities for unemployment taxes, plus how a payroll service can help fix (and prevent) mistakes, are you ready to check out payroll services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about our payroll service pricing, which is comparable to national providers.
