Everything Alabama employers need to know about paying unemployment insurance taxes.
If your small company employs people in Alabama, you must pay the Alabama unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In Alabama, the state unemployment insurance levy is simply one of numerous taxes that companies must pay. Other major employer taxes not mentioned here include the federal unemployment insurance tax, as well as state and federal withholding taxes.
Varied states have different UI tax policies and rates. Here are the fundamental guidelines for Alabama’s UI tax.
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Become a member of the Department of Labor.
Your small company, as an Alabama employer liable to UI tax, must open an Alabama UI tax account with the Alabama Department of Labor (ADOL). You may open an account with ADOL either online or in person. You will be given an unemployment compensation (UC) account number after you have enrolled.
Use ADOL’s eGov User Registration page to register online. Use Form SR-2, Application to Determine Liability, to register on paper. Blank forms may be downloaded from the ADOL website’s Unemployment Compensation Documents area. There is no cost to register your company with ADOL.
You will need a federal employer identification number to set up your Alabama UI tax account (EIN). You may get an EIN by visiting irs.gov. In most cases, if you apply online, you will obtain your EIN very instantly.
UI Tax Liability Regulations
In Alabama, most for-profit firms are subject to state unemployment insurance fees as soon as they:
hired one or more people on some day in 20 or more distinct weeks, whether consecutive or not, during the current or previous calendar year, or paid compensation of $1,500 or more in any calendar quarter during the current or prior calendar year.
These are the same standards that govern liability under the Federal Unemployment Tax Act (FUTA). Furthermore, if your company purchases another company that was due for Alabama UI taxes (a process known as “successorship”), your company will be liable for state UI taxes as well. Different restrictions apply to agricultural (farm) workers, domestic (in-home) workers, and employees of certain (but not all) non-profit organizations, which are not included here.
One piece of good news is that state UI tax payments are often deductible from FUTA taxes.
Wage Structure and Tax Rates
Each employee’s salaries are subject to UI tax up to a certain yearly limit. For many years, Alabama’s taxable salary base has remained steady at $8,000 per year. However, the quantity is always subject to change.
The state UI tax rate for new employers might also alter from year to year. However, in recent years, it has remained steady around 2.7%. Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, whether your company has ever had workers file claims for state unemployment benefits.
Submit UI Tax Reports and Payments Quarterly
UI tax reports and payments are due in Alabama on the last day of the month after the end of the quarter. In other words, reports and payments are required by the dates listed below:
Returns and payments for the first quarter are due on or before April 30.
Returns and payments for the second quarter are due on or before July 31.
Third-quarter returns and payments are due by October 31, and fourth-quarter returns and payments are due by January 31.
Every report and payment must be submitted electronically (online). Utilize the ADOL’s eGov Login webpage. You will be submitting the information that was previously contained on paper Forms UC-CR-4 and UC-10-R. You will make payments using Electronic Funds Transfer via the online system (EFT).
Even if your company paid no employees during the quarter, you must submit quarterly reports. If you do not file, you will face a penalty.
Make a Public Notice (Poster)
You must display a notification (poster) about state unemployment claims in a prominent location. The poster gives basic information on when an employee may be eligible for unemployment benefits and how to make a claim. From the Unemployment Compensation Documents area of the ADOL website, you may obtain a notification that satisfies all legal criteria (Your Job Insurance).
Employees should not be misclassified as independent contractors.
Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.
Using Payroll Service Providers
You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.
Further Information
This page simply covers the most fundamental aspects of Alabama UI taxes. Check the IRS and ADOL websites for the most up-to-date information to avoid fines for errors. The ADOL also publishes an Employer Handbook, which you may get by visiting the ADOL website. Employers must also pay federal unemployment insurance, state and federal withholding taxes, report new hiring, and keep employee records, in addition to state unemployment insurance
.