If your small business has employees working in Massachusetts, you’ll need to pay Massachusetts unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Massachusetts, 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 Massachusetts’s UI tax.
As an employer, you will need to establish a Massachusetts UI tax account with the state’s Department of Unemployment Assistance (DUA). To set up your account you must register online at the DUA’s UI Online website (also known as the QUEST system). Your account number should be issued the same day. There is no fee to register your business with the DUA.
Note: To establish your Massachusetts 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 Massachusetts for-profit employer, you generally are liable for the state’s UI tax if:
Regarding the first of these two criteria, note that it isn’t necessary that the weeks of employment be consecutive or that the employees remain the same in order for you to be liable. Different rules, not covered here, apply to agricultural workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations. Also, liability rules under the Federal Unemployment Tax Act (FUTA) are slightly different than the state rules for Massachusetts.
Massachusetts requires that you pay UI taxes up to a fixed maximum amount of each employee’s wages. That amount, known as the taxable wage base, is $15,000. The amount is subject to change in future years.
The UI tax rate for new employers, which recently has been just above or below 2%, also is subject to change. 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. Established businesses should receive an annual notice from the DUA advising of their UI tax rate for the new year.
Massachusetts has an option for deferring part of the amount due during the first and second quarters of the year. For more information, check the DUA website.
One piece of good news is that state UI tax payments generally can be credited against your federal unemployment (FUTA) taxes.
In Massachusetts, UI tax returns and payments are due within one calendar month from the end of each calendar quarter. In other words:
If the due date falls on a weekend or holiday, payments initiated the following business day will be timely.
You must file UI tax reports and payments electronically using the DUA’s UI Online system.
You are required to post a notice (poster) regarding state unemployment insurance in a conspicuous place for all employees. The poster provides basic information on how an employee can apply for UI benefits. You can download a poster that meets the legal requirements (Form 2553-A) from the Forms and Publications section of the DUA 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 Massachusetts UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DUA websites for the latest information. The DUA has a helpful publication,The Employer’s Guide to Unemployment Insurance, which you can download from the Forms and Publications section of the DUA 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, and required reporting of new hires. You can get more information about other small business tax issues in other articles on Nolo.