If your small business has employees working in Connecticut, you’ll need to pay Connecticut unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Connecticut, state UI tax is just one of several taxes that employers must pay.
Different states have different rules and rates for UI taxes. Here are the basic rules on Connecticut’s UI tax.
As a Connecticut employer subject to UI tax, your small business must establish a UI tax account with the Connecticut Department of Labor (DOL). You set up your account by registering your business with the DOL either online or on paper. Once registered, you’ll be issued a Connecticut DOL registration number. To register online, use the Connecticut Employer Registration System (CTERS) on the DOL website. To register on paper, use Form UC-1A,Employer Status Report for Unemployment Compensation. Blank forms are available for download from the Tax Forms section of the DOL website. There is no fee to register your business with the DOL for UI tax purposes (other types of tax registration can incur a fee).
Note: To establish your Connecticut 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 will receive your EIN immediately.
As a Connecticut employer, you are liable for the state’s UI tax if you are also liable for the federal unemployment tax under the Federal Unemployment Tax Act (FUTA). In general, this means that you’re liable for state UI taxes if, during the current or preceding calendar year, you either:
Different rules, not covered here, apply to agricultural workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.
For many years, Connecticut has required UI taxes on the first $15,000 of each employee’s wages. However, that amount, known as the taxable wage base, could change.
The UI tax rate for new employers changes almost every year. In recent years it generally has been somewhere between 3% and 5%. Established employers are subject to a lower or higher rate than new employers depending on “experience.” This means, among other things, whether your business has ever had any employees who made claims for state unemployment benefits. For an overview of the latest rate and wage base information, check the tax rates and taxable wage base table on the DOL website.
One piece of good news is that state UI tax payments generally can be credited against your FUTA taxes.
In Connecticut, UI tax returns and payments generally are due 30 days after the end of each calendar quarter. In other words, UI tax returns are due by the following dates:
If the payment is due on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day.
You must file UI tax returns and payments electronically unless you’ve been granted a waiver by the DOL. The DOL mails UI tax forms to employers who are allowed to file on paper by the last business day of each quarter and usually earlier. The key paper forms are the Form UC-2, Employer Contribution Return, and Form UC-5A,Employees Quarterly Earnings Report. If filing by paper, make sure to attach a payment check to your Form UC-2.
If you are filing electronically, you can use the Connecticut Internet Tax and Wage System. You can make payments via Automated Clearing House (ACH) or Electronic Funds Transfer (EFT). The DOL has forms for registering your business for each of these methods of payments.
Once your business has registered with the DOL and been found liable for UI taxes, you must continue to file quarterly returns even if you have no employees or no taxes are due. You will be subject to failure to file fees if you do not file.
Unlike most other states, Connecticut does not require you to post a notice (poster) regarding state unemployment insurance. However, state and federal law does require you to post other notices, such as one regarding its Workers’ Compensation Act. You can download employer posters that meet the state’s legal requirements from theagency forms section of the DOL website.
Employers who use independent contractors rather than hiring employees are not subject to the UI tax. However, it’s important that you do not misclassify an employee as an independent contractor. If you do misclassify an employee, you could be subject to penalties or fines.
You may 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, may still be held directly responsible for mistakes made by an outside payroll company.
This article touches on only the most basic elements of Connecticut UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DOL websites for the latest information. The DOL also has An Employer's Guide to Unemployment Compensation available for download from the UI tax page. 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, and required reporting of new hires. You can get information about other small business tax issues in other articles on Nolo.com.