Employers should be aware of all they need to know about paying unemployment insurance taxes in the District of Columbia.
If your small company employs people in the District of Columbia, you must pay the DC unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In DC, the state unemployment insurance levy is simply one of numerous levies 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 fundamentals of DC’s UI tax.
Become a member of the Department of Employment Security.
As a DC employer, your small company must open a UI tax account with the DC Department of Employment Services (DOES). DOES allows you to open an account either online or on paper. After you register, you will be given a UI tax account number.
To register online, go to the New Business Registration section of DC’s Office of Tax and Revenue’s website (OTR). You may also be able to register online if DOES launches a new website. Use Form FR-500, Combined Business Tax Registration Application, to register on paper. The form covers business registration for a variety of uses. Part VI of the form concerns UI tax registration. Blank forms may be downloaded from the OTR website’s Forms and Publications area. There is no cost to register your company with DOES.
You will need a federal employer identification number to set up your District of Columbia 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.
Unemployment Insurance Tax Liability Regulations
Unlike in other jurisdictions, DC’s unemployment compensation statute does not require a certain amount of wages to be paid before an employer is subject to UI tax. Instead, it is expected that ordinary employers will be held accountable merely because they employ someone. Typical for-profit employers, on the other hand, are responsible for FUTA taxes under the Federal Unemployment Tax Act (FUTA) if, during the current or prior calendar year, they either:
paid salaries of $1,500 or more in each calendar quarter, or had one or more workers at any time in each of twenty calendar weeks.
Different restrictions apply to agricultural laborers, 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, the taxable salary base in DC has remained steady at $9,000 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. It has recently been equal to the average rate of contributions paid by all employers during the prior year, or 2.7%, whichever is greater. In fact, this has meant a 2.7% rate in recent years. The new employer rate is usually in place for 4-5 years.
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
In the District of Columbia, UI tax reports and payments are due on the last day of the month after the conclusion of each calendar quarter.
You have the option of filing your reports and payments online or on paper. (While not mentioned here, reports may also be filed on magnetic media, such as a CD.) Use the DOES Employer Self Service Portal to file online. Use Form UC-30, Employer’s Quarterly Contribution and Wage Report, to file on paper. Near the conclusion of each quarter, DOES distributes Form UC-30 to all employers. The forms are preprinted with information relevant to your company. If you do not get a form, you should contact DOES to request one. Failure to obtain a form does not absolve you of the need to file.
You must submit a Contribution and Wage Report when it is due as long as you are still in business. Even if you have no workers and pay no salaries during the quarter, you must submit a report. (This is referred to as submitting a zero wage report.) If you do not file, you will face a penalty.
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 District of Columbia UI taxes. Check the IRS and DOES websites for the most up-to-date information to avoid potential fines for errors. The DOES website also includes a handy document, Unemployment Insurance Handbook for Employers, which you can download. Employers have additional duties not discussed in this article, such as federal UI tax, state and federal withholding taxes, mandated reporting of new hiring, and required preservation of employee data, in addition to state UI tax.