Employer's Guide to Unemployment Insurance Tax in Indiana

Everything employers need to know about paying unemployment insurance taxes in Indiana.

If your small business has employees working in Indiana, you’ll need to pay Indiana unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Indiana, 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 Indiana’s UI tax.

Note: Indiana frequently refers to a state UI tax account as a SUTA account (SUTA stands for State Unemployment Tax Act or, more simply, State Unemployment Tax).

Register With the Department of Workforce Development

As an Indiana employer, your small business must open a state unemployment account with the Indiana Department of Workforce Development (DWD). You must register during the first calendar quarter that your business is liable to pay UI premiums (taxes). (See below for liability rules.) You can register for an account with DWD either online (the method DWD prefers) or on paper. Once you’ve registered, DWD will issue you a SUTA account number.

To register online, use the Uplink Employer Self Service (ESS) website. To register on paper, use State Form 2837,Report to Determine Status. Blank forms are available for download from the Forms and Downloads section of the DWD website. There is no fee to register your business with DWD.

Note: To establish your Indiana 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.

Rules for UI Tax Liability

Indiana changed its unemployment compensation law in 2015. Following the change, Indiana, unlike most other states and the federal government, no longer requires that a minimum amount of wages must be paid before an employer is liable for UI tax. Instead, the law basically assumes that typical employers are liable simply if they pay any wages to at least one employee.

By contrast, under the Federal Unemployment Tax Act (FUTA), typical for-profit employers are liable for FUTA taxes if, during the current or preceding calendar year, they either:

  • paid wages of $1,500 or more in any calendar quarter, or
  • had one or more employees at any time in each of twenty calendar weeks.

Different rules, not covered here, apply to agricultural 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. However, because Indiana borrowed federal funds to pay UI benefits in the wake of the Great Recession, and is in the processing of paying back that loan, the amount of state UI taxes that currently can be credited against FUTA taxes is lower than it otherwise would be.

Wage Base and Tax Rates

UI tax is paid on each employee’s wages up to a maximum annual amount. Since 2011 in Indiana, that amount, known as the taxable wage base, has been stable at $9,500. Moreover, under current state law, that will remain the wage base until 2020. However, it’s always possible the law—and the amount—could change.

The state UI tax rate for new employers, also known as the standard rate, also may change from one year to the next. However, in recent years, the rate has been stable at 2.5%. (Businesses in the construction industry pay a higher starting rate.) The new employer rate usually remains in effect for at least 36 months. 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.

File Quarterly UI Tax Reports and Payments

In Indiana, UI tax reports (also known as premium reports) and payments are due on or before the last day of the month following the end of each calendar quarter. In other words:

Quarter

Wages Paid in Period

Due Date (on or before)

First

January, February, March

April 30th

Second

April, May, June

July 31st

Third

July, August, September

October 31st

Fourth

October, November, December

December 31st

You can file your reports and payments online or on paper. DWD recommends that reports be filed online. However, DWD also mails report forms to employers. Large employers (more than 200 employees) also have the option to report using electronic media (such as CDs or DVDs); that option is not covered here.

To file online, use the Uplink Employer Self Service (ESS) website. To file on paper, use Form UC-1, Quarterly Contribution Report, and Form UC-5, Quarterly Payroll Report. You should use the copies of these forms that DWD sends you. However, if necessary, you can download blank substitute forms from the Forms and Downloads section of the DWD website. You can make premium payments by check or electronic check without a fee. You also can pay by credit card, but there is a nominal fee.

As long as you have an active SUTA account, you must file reports every quarter by the due date. If you are liable for UI taxes for any part of a calendar year, you are liable for the entire year and must file quarterly reports for the entire year. If you believe your business no longer meets the qualifications for UI tax, you must notify DWD. In such cases, you must continue to file quarterly contribution and wage reports until you are notified that your account has been made inactive. You will be subject to a penalty if you fail to file.

Post a Notice (Poster)

You are required to prominently display a notice (poster) regarding state unemployment claims. The poster states that your business is subject to Indiana’s UI laws and tells employees how to find information on UI benefits. DWD will send you a copy of this notice. You can also download copies that meet all legal requirements (UI Poster) from the Forms and Downloads section of the DWD website.

Do Not Misclassify Employees as Independent Contractors

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.

Using Payroll Service Companies

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.

Additional Information

This article touches on only the most basic elements of Indiana UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DWD websites for the latest information. DWD also has a helpful publication,Unemployment Insurance Employer Handbook, that you can download from the DWD 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.

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