Everything employers need to know about South Dakota unemployment insurance taxes.
If your small company employs people in South Dakota, you must pay the state’s unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In South Dakota, one of the key taxes that companies must pay is the state unemployment insurance levy. South Dakota, unlike most other states, does not have state withholding taxes. Other essential employer taxes that are not mentioned here include federal unemployment insurance and withholding taxes.
Varied states have different UI tax policies and rates. The fundamental regulations for South Dakota’s UI tax are as follows.
Become a member of the Department of Employment Security.
As a South Dakota employer liable to unemployment insurance tax, your small company must open a state unemployment insurance tax account with the South Dakota Department of Labor and Regulation (DLR). You may open an account with the DLR either online or in person. Once registered, the DLR will provide your firm an account number and tax rate within 2-3 weeks.
Use the DLR’s Unemployment Insurance Registration page to register online. Download and complete Form 1, Employer’s Report to Determine Liability, to register on paper. Form 1 may be downloaded at the DLR website’s UI Tax Division Forms section. There is no cost to register your company with IDES.
You will need a federal employer identification number to set up your South Dakota 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
As a for-profit employer in South Dakota, you are normally responsible for state unemployment insurance taxes if any of the following requirements are met:
You employ one or more people (full- or part-time) in 20 different calendar weeks in the current or previous calendar year, you pay wages of $1,500 or more in a calendar quarter in the current or previous calendar year, you are covered by the Federal Unemployment Tax Act (FUTA), or you acquired all or a portion of a business that was already subject to state UI taxes.
Because the first two of these principles are essentially the same as those that produce responsibility under FUTA, if your company is liable under FUTA, it is likely to be liable for UI tax in South Dakota as well, and vice versa. 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. In South Dakota, this sum, known as the taxable wage base, has lately increased by $1,000 practically every year. It has recently surpassed the $15,000 mark. This figure, however, is susceptible to alter in subsequent years.
The state unemployment insurance tax rate for new employers, often known as the normal starting tax rate, might alter from year to year. In addition to the UI tax, an investment charge is levied. The UI tax rate has been 1.2% in recent years, with an investment charge of.55%, for a total effective tax rate of 1.75%. In general, that rate should fall by.2% in the second and third years of a firm. (Employers in the construction business must pay a much higher rate.) 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
Quarterly UI tax reports and payments are due on the last day of the months of April, July, October, and January in South Dakota.
You have the option of filing your reports and payments online or on paper. Use South Dakota’s Unemployment Insurance Online Tax Reporting System to file online. Use Form 21, Employer’s Quarterly Contribution, Investment Fee, and Wage Report, to file on paper. During the final week of each quarter, the necessary reporting forms are distributed to all employers who:
submitted a paper report for the previous quarter, or are submitting a report for their first quarter in operation.
Form 21 may be downloaded from the DLR website’s Forms section. Employers who file online will not be sent a form. Even if you do not get a form in the mail, it is your obligation to submit a report during the month it is due. You may pay online or by mail if you file online. Electronic Funds Transfer (EFT) and credit card payments are accepted online.
Even if no salaries were received, you must submit 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 visible location for all workers. The poster explains that your company is protected by South Dakota’s unemployment insurance legislation and includes basic information about who may be eligible for benefits and how to make an unemployment claim. You may obtain the needed Notice to Employees from the DLR website’s Posting Requirement section, which satisfies all legal requirements.
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 South Dakota UI taxes. Check the IRS and DLR websites for the most up-to-date information to avoid potential fines for inaccuracies. DLR also provides a handy booklet, Unemployment Insurance Handbook for Employers, which you may get from the DLR website’s UI Tax section. Employers must also pay federal unemployment insurance, state and federal withholding taxes, and record new hires, in addition to state unemployment insurance.