If your small business has employees working in Delaware, you'll need to pay Delaware unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Delaware, 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 Delaware's UI tax.
As a Delaware employer, your small business must establish a UI employer account with the Division of Unemployment Insurance (DUI) within the Delaware Department of Labor (DOL). You should register with the DOL within 20 days of starting business as an employer. You can register for an account with the DOL either online or on paper. If the DOL determines your business is liable for UI tax, you'll be issued a UI account number. (Most employers are liable.)
To register online, use Delaware's One Stop business registration website. To register on paper, use Form UC-1,Report to Determine Liability and if Liable Application for Employer Account Number. Blank forms are available for download from the UI Forms section of the DUI's website. There is no fee to register your business with the DOL.
Note: To establish your Delaware 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 Delaware for-profit employer, you generally are liable for state UI taxes if you meet any of the following conditions:
These are effectively the same rules 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. One piece of good news is that 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, has held steady in recent years at $18,500. However, it's always possible that amount could change.
The state UI tax rate for new employers also is subject to change from one year to the next. In recent years, it generally has been somewhere between 2.1% and 2.8%. Employers in construction-related areas are subject to higher rates. The new employer rate generally applies for at least two years. Established employers are subject to 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. In recent years, established employer rates have ranged from 0.3% to 8.2%.
In Delaware, UI tax reports and payments (assessments) are due by the end of the month following the end of each calendar quarter. In other words:
You can file your reports and payments online or on paper. To file online, use Delaware's Online Employer Services Portal. To file on paper, use Form UC-8, Employer's Quarterly Report. The form is mailed to registered employers at least 30 days in advance of the due date. You also can download blank forms from the UI Forms section section of the DUI's website.
Online payments must be made by Automated Clearing House (ACH). No credit card or debit card payments will be accepted. When filing on paper, you can pay by check. If paying by check, make sure to include the paper payment voucher.
You must file quarterly reports even if you had no payroll in the quarter and whether or not any assessment is payable. You will be subject to a penalty if you fail to file.
You are required to post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster must provide basic information informing employees that your business is covered by Delaware's UI law. If the DUI determines that your business is liable for UI taxes, they will send you a notice that meets all legal requirements (Form UC-6, Notice of Coverage). Unlike other states, Delaware currently does not make copies of this form available for download.
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 Delaware UI taxes. Avoid possible penalties for making mistakes by checking the IRS, DOL, and DUI websites for the latest information. The DUI also has a helpfulUnemployment Insurance Employer Handbook that you can download from the Employer Services section of their website. 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. You can get more information about other small business tax issues in other articles here on Nolo.