If your small business has employees working in Colorado, you must pay Colorado unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. (In Colorado, state UI tax is just one of several taxes that employers must pay. Other important employer taxes, not covered here, include federal UI tax, and state and federal withholding taxes.)
Different states have different rules and rates for UI taxes. Here are the basic rules for Colorado's UI tax.
As a Colorado employer liable for UI taxes, your small business must establish a Colorado UI tax account with the Colorado Department of Labor and Employment (CDLE). You can register for an account with CDLE either online or on paper. Once registered, you'll be issued a UI tax account number.
To register online, use the Colorado Business Express (CBE) website. To register on paper, use Form UITL-100,Application for Unemployment Insurance Account and Determination of Employer Liability. Blank forms are available for download from the CDLE website. There is no fee to register your business with IDES.
To establish your Colorado UI tax account, you'll need a federal employer identification number (EIN). You can apply for an EIN at IRS.gov. Generally, if you apply online, you'll receive your EIN immediately.
As a Colorado for-profit employer, you generally are liable for state UI taxes if you meet either of the following conditions:
These rules are effectively the same as those that apply for liability under the Federal Unemployment Tax Act (FUTA). Different rules, not covered here, apply to agricultural (farm) workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.
State UI tax payments generally can be credited against your FUTA taxes.
UI tax is paid on each employee's wages up to a maximum annual amount. That amount, known as the "taxable wage base" or "chargeable wage limit," increases every year in Colorado. For current information, check the Premium Rates page on the CDLE website.
The state UI tax rate for new employers also can change from one year to the next. The overall rate ("standard rate" or "combined rate") currently has two components: a base rate and a bond principal rate. In recent years, the combined rate has been a little over .02%. (There are higher rates for employers in construction trades).
Established employers are subject to a "computed rate," which may be a lower or higher rate than new employers depending on an "experience rating." This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits.
For current rate information, check the links on the Premiums page of the CDLE website.
In Colorado, UI tax reports and payments (premiums) are due by the last day of the month following the close of each calendar quarter. In other words:
To file on paper, use Form UITR-1. The paper form is not available for download from the CDLE website. However, CDLE should mail you a form each quarter.
You're required to post a notice (poster) regarding state unemployment claims. The poster provides basic information on how to file an unemployment claim.
You can download a notice that meets all legal requirements (Form 502, Notice to Workers) from the CDLE website.
Employers who use independent contractors rather than hiring employees aren't subject to the UI tax. However, it's important that you don't misclassify an employee as an independent contractor.
If you misclassify an employee, you could be subject to penalties or fines.
You might decide that it's easiest to hand over responsibility for payroll, including UI taxes, to an outside payroll service. If so, keep in mind that your business, or even you personally, could still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the most basic elements of Colorado UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and CDLE websites for the latest information.
In addition to state UI tax, employers have other responsibilities not covered in this article, such as federal UI tax, state and federal withholding taxes, required reporting of new hires, and required retention of employee records. Talk to a tax lawyer or employment attorney to learn more.