What You Should Know About Unemployment Insurance
Here are some questions and answers for family child care providers about unemployment insurance:
"Can I claim unemployment benefits for myself?"
No. The vast majority of family child care providers are self-employed (sole proprietor). As a self-employed business you don't pay a federal or state unemployment tax so you are not eligible for unemployment benefits.
If you incorporated your business and became an employee of the corporation, then under some situations where you are paying unemployment taxes you could be eligible to receive unemployment benefits.
This is logical. You can't lay yourself off and then try to claim unemployment benefits!
"Under what circumstances must I pay federal unemployment tax?"
You must pay federal unemployment tax (FUTA) if you paid an employee $1,500 or more in any calendar quarter of a year or had any employee who worked for some part of a day in any 20 different weeks during the year.
This FUTA tax rate is .6% of the first $7,000 in wages for each employee. Thus, if you paid someone $1,000 in a year you would owe $6 in taxes. If you pay $7,00 or more you would owe $42 in taxes.
Note: There are eighteen states in which you will pay a higher FUTA tax. These states are Arizona, Arkansas, California, Connecticut, Delaware, Florida, Georgia, Indiana, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, Vermont, Virgin Islands and Wisconsin.
"Must I pay federal unemployment taxes if I hire my spouse or own child?"
You do not have to pay FUTA taxes if you hire your spouse or if you hire your own child who is under age 21.
"When and how do I pay federal unemployment tax?"You would file an annual IRS Form 940 Employer's Annual Federal Unemployment (FUTA) Tax Return if your total FUTA tax is less than $100 in a year (or $12,500 in wages to several employees). This form is due by January 31 of the following year.
If you owe more than $100 in FUTA taxes as the end of any quarter, you must make deposits by the end of the month following the quarter.
You must either pay your FUTA taxes electronically using the Electronic Federal Tax Payment System (EFTPS) or arrange for your tax professional, bank or payroll service to make deposits on your behalf. EFTPS is free. To enroll or call 800-555-4477.
"When must I purchase state unemployment insurance?"
State unemployment taxes are usually much higher than the FUTA tax rate. Each state's rules are different, so contact your state department of labor to find out the rules for your state.
Tom Copeland - www.tomcopelandblog.com
Image credit: https://www.lanereport.com/145577/2021/08/the-bottom-line-additional-unemployment-payments-from-the-federal-government-ending-soon/
For more information about how to fill out the FUTA tax forms, see my Family Child Care Tax Workbook and Organizer.
