If your small business has employees working in Iowa, you'll need to pay Iowa unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Iowa, 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 Iowa's UI tax.
As an Iowa employer, your small business must establish an Iowa UI tax account with Iowa Workforce Development (IWD). You should register no later than the month after you first hire employees in Iowa. You must register online. Use the MyIowaUI website (MIUI). Once registered, you'll be issued an employer account number. There is no fee to register your business with IWD.
Note: To establish your Iowa 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 an Iowa for-profit employer, you generally are liable for state UI taxes if you meet any of the following conditions:
The first three listed items are essentially the same rules that apply for liability under FUTA. Therefore, if you are liable under FUTA, you likely are also liable for state UI taxes, and vice versa. 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 is known as the taxable wage base. By law in Iowa, the amount is either two-thirds of the statewide average weekly wage multiplied by 52, or the taxable wage base for FUTA, whichever is greater. In practice, this means the wage base in Iowa increases every year in Iowa. In recent years it has approached and then exceeded $28,000.
The state UI tax rate for new employers also can change from one year to the next. In recent years, it generally has been at or near 1.0%. (Employers in the construction industry pay a higher rate.) 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 Iowa, UI tax reports and payments are due by the last day of the month following the close of each calendar quarter. In other words:
If the last day of the month falls on a weekend, the report is due the following Monday.
The quarterly report, known as the Employer's Contribution & Payroll Report, must be filed electronically. Unlike in other states, there is no option to file using a paper form. In most cases, electronic filing means filing online. However, there is also an option—not covered here—to file using Secure File Transfer. To file online, use the MyIowaUI website.
As an employer liable for UI taxes, you must file quarterly reports even when there is no employment in a specific reporting quarter. 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 informs employees of their potential right to benefits under the UI law and gives general instructions on how and where to apply for benefits. You can download a notice that meets all legal requirements (Unemployment Insurance) from the Required Employer Posters section of the IWD 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 Iowa UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and IWD websites for the latest information. IWD also has a helpful publication,Unemployment Insurance Handbook for Employers, that you can download from the IWD 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 of retention of employee records. You can get more information about other small business tax issues in other articles here on Nolo.