If your small business has employees working in Pennsylvania, you’ll need to pay Pennsylvania unemployment compensation (UC) tax. The UC tax funds unemployment compensation programs for eligible employees. In Pennsylvania, state UC tax is just one of several taxes that employers must pay. Other important employer taxes, not covered here, include federal unemployment insurance (UI) tax, and state and federal withholding taxes.
Different states have different rules and rates for UC taxes. Here are the basic rules for Pennsylvania’s UC tax.
Note: Unlike other states that refer to “unemployment insurance” or “UI” tax, Pennsylvania government offices often use the terms “unemployment compensation” and “UC” tax.
As a Pennsylvania employer subject to UC tax, your small business must establish a UC tax account with the Pennsylvania Department of Labor & Industry (DLI). You must register for a state UC tax account within 30 days of an employee performing services covered by the state’s UC law, as well as within 30 days of certain other circumstances not covered here. If you fail to register within 30 days, you will be subject to a penalty.
You can register for an account with the DLI either online or on paper. Once registered, you’ll be issued a UC account number. To register online, which is the method the DLI prefers, use the PA Biz Online website. At PA Biz Online, you can use either of two possible formats to register: An Online Business Registration Interview or an online version of Form PA-100, Enterprise Registration Form. To register on paper, use Form PA-100. This is a general form used to register businesses for various tax purposes. Blank copies of the form are available for download from the Forms and Publications section of the Department of Revenue (DOR) website. The registration process allows you to register with the DOR for other business tax purposes beyond UC tax. There is no fee to register your business for UC tax purposes.
Note: To establish your Pennsylvania UC 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, Pennsylvania UC law does not have a minimum amount of wages that must be paid for an employer to be liable for UC tax. Instead, it is assumed that typical employers will be liable simply if they have an 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:
Different rules, not covered here, apply to agricultural workers, domestic (in-home) workers, and employees of some (but not all) non-profit organizations.
UC tax is paid on each employee’s wages up to a maximum annual amount. That amount, known as the taxable wage base, currently is set to increase by $250 per year in Pennsylvania at least until 2018. The wage base recently has been at or above $9,000 and in 2018 will hit $10,000.
Unlike other states, Pennsylvania’s UC tax requires withholding employee contributions along with direct payments by the employer. In recent years, the employee withholding rate has been .07%. However, that amount is subject to change. The taxable wage base does not apply to employee contributions.
The state UC tax rate for new employers, also known as the standard beginning tax rate, can change from one year to the next. In recent years, it has been 3.6785% for most new employers. New employers in the construction industry, however, are subject to a significantly higher beginning 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.
You can find current and historical information about wage bases and tax rates in the UC Tax Rates section of the DLI website.
In Pennsylvania, UC tax reports and payments are due at the end of the month following the calendar quarter. In other words, reports and payments are due by the following dates:
If a due date falls on a Saturday, Sunday, or legal holiday, the report will be due on the next business day.
You are expected to file reports electronically (online). If you are unable to file electronically, you can request a temporary waiver from the DLI so you can submit reports on paper. If you file on paper without a waiver, you will be charged a penalty. To file electronically, use Pennsylvania’s UC Management System (UCMS). UCMS provides various ways to submit your report information.
You can pay online using Automated Clearing House (ACH) debit, ACH credit, or a credit card. You also have the option to print out a payment voucher from UCMS to mail in with a paper check.
If no wages are paid for a quarter, you must file a “none” report. You will be subject to a penalty if you fail to file. If your business pays no wages for four consecutive quarters, the DLI will automatically remove it from the active employer files.
You are required to post a notice (poster) regarding state unemployment claims in a conspicuous place for all employees. The poster states that your business is registered with the DLI under Pennsylvania’s UC law and provides basic information on how an employee can file a claim for unemployment benefits. You can download a notice (Form UC-700,Pennsylvania Unemployment Compensation) from the Mandatory Postings section of the DLI website that meets all legal requirements.
Employers who use independent contractors rather than hiring employees are not subject to the UC 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 UC 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 Pennsylvania UC taxes. Avoid possible penalties for making mistakes by checking both the IRS and DLI websites for the latest information. The DLI website has a variety of helpful publications, such as the Employer's Reference Guide to Unemployment Compensation. In addition to state UC 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 here on Nolo.com.