If your small business has employees working in Rhode Island, you'll need to pay Rhode Island unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Rhode Island, 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 for Rhode Island's UI tax.
Note: Rhode Island actually has three separate taxes relating to unemployment:
Rhode Island employers are responsible for paying the first two of these taxes. Payment of the TDI tax is made by withholding from an employee's gross earnings. This article only covers the taxes paid by the employer and refers to those taxes collectively as UI tax.
As a Rhode Island employer, your small business must establish a Rhode Island UI tax account with the Rhode Island Division of Taxation (DOT) and Department of Labor and Training (DLT). You can register for a UI tax account either online or on paper. If the state determines that your business is subject to Rhode Island's Employment Security and Temporary Disability Insurance Acts, you'll be issued a Registration Account Number.
To register online, use the DOT's Combined Online Registration Service. With online registration, it can take up to 4 weeks for the DOT to assign your account. To register on paper, use Form BAR, Business Application and Registration. Blanks forms are available from the withholding tax forms section of the DOT website. Submit Form BAR by regular mail. If you register on paper it can take 4-6 weeks for the DOT to assign your account. There is no fee to register your business with the DOT as an employer.
Note: To establish your Rhode Island 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.
Unlike other states, Rhode Island law does not have a minimum amount of wages that must be paid before an employer is considered liable for UI taxes. Instead, almost all employers of one or more workers in Rhode Island are subject to the Employment Security and the Temporary Disability Insurance Acts. Moreover, employers of part-time and seasonal workers are liable for UI taxes even if their employees work for only part of a day.
By contrast, under the Federal Unemployment Tax Act (FUTA), typical for-profit employers generally are liable for FUTA taxes if, during the current or preceding calendar year, they either:
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, at least in part, against your FUTA taxes. The exact amount of the credit may vary to the extent Rhode Island continues to have an outstanding loan to the federal government for funds to pay UI benefits.
UI tax is paid on each employee's wages up to a maximum annual amount. That amount, known as the taxable wage base, usually increases by around $500 every year in Rhode Island. Unlike other states, Rhode Island has a two-tiered system for wage bases instead of just a single wage base. In recent years, the lower-tier wage base has approached and then exceeded $22,000 and the higher-tier wage base has been approaching $23,000. The wage base applies to both the employment security and job development taxes. For current wage base information, check the DLT website.
The state UI tax rate for new employers, also known as the standard beginning tax rate, also can change from one year to the next. In recent years, the employment security tax component generally has been around 2.75% and the job development tax component between roughly .2% and .5%. 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 Rhode Island, UI tax reports and payments are due by the last day of the month following the end of each calendar quarter. In other words:
Smaller employers can file online or on paper. Larger employers must file electronically. To file online, go the DOT's Employer Tax Section and click on the link for Online Tax Reporting. To file on paper, use Form TX-17, Quarterly Tax and Wage Report. The DLT sends quarterly report forms to most employers before each due date. You can also download blank forms from the Tax Forms section of within the Employer Tax Section of the DOT website. Larger employers must pay by Electronic Funds Transfer (EFT). Smaller employers can pay by EFT or by paper check.
You must file quarterly reports even if you pay no wages during a calendar 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 location visible to all employees. The poster provides basic information on the rights of insured workers. The DLT will send you a copy of the necessary poster, Form DLT-TX-6, Notice To All Employees, when you become subject to Rhode Island's UI laws. You can also download a combo poster, which combines all six required DLT posters, from the posters sectionof the DLT 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 Rhode Island UI taxes. Avoid possible penalties for making mistakes by checking the IRS, DOT, and DLT websites for the latest information. The DLT publishes a helpfulEmployer Handbook that you can download from the Employer Tax section of the DOT 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.