Employer's Guide to Unemployment Insurance Tax in South Dakota

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

If your small business has employees working in South Dakota, you’ll need to pay South Dakota unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In South Dakota, state UI tax is one of the primary taxes that employers must pay. Unlike most other states, South Dakota does not have state withholding taxes. However, other important employer taxes, not covered here, include federal UI and withholding taxes.

Different states have different rules and rates for UI taxes. Here are the basic rules for South Dakota’s UI tax.

Register With the Department of Employment Security

As a South Dakota employer subject to UI tax, your small business must establish a state UI tax account with the South Dakota Department of Labor and Regulation (DLR). You can register for an account with the DLR either online or on paper. Once registered, it takes the DLR approximately 2-3 weeks to assign your business an account number and tax rate.

To register online, use the DLR’s Unemployment Insurance Registration website. To register on paper, download and complete Form 1, Employer's Report to Determine Liability. You can download Form 1 from the UI Tax Division Formssection of the DLR website. There is no fee to register your business with IDES.

Note: To establish your South Dakota 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

As a for-profit employer in South Dakota, you generally are liable for state UI taxes if any of the following conditions is true:

  • you employ one or more individuals (full- or part-time) in 20 different calendar weeks in the current or preceding calendar year
  • you pay wages of $1,500 or more in a calendar quarter in the current or preceding calendar year
  • you are covered under Federal Unemployment Tax Act (FUTA), or
  • you acquired all or a portion of a business already subject to state UI taxes.

Because the first two of these rules are effectively the same as those that create liability under FUTA, if your business is liable under FUTA it’s likely to also be liable for UI tax in South Dakota, 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.

Wage Base and Tax Rates

UI tax is paid on each employee’s wages up to a maximum annual amount. That amount, known as the taxable wage base, recently has been increasing by $1,000 almost every year in South Dakota. Most recently, it has reached $15,000. That amount, however, is subject to change in future years.

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. Along with the UI tax, a so-called investment fee is also assessed. In the last few years, the UI tax rate has been 1.2%, and the investment fee has been .55%, for a total effective tax rate of 1.75%. In general, that rate should drop by .2% in a business’s second and third years. (Employers in the construction industry are subject to a significantly 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.

File Quarterly UI Tax Reports and Payments

In South Dakota, quarterly UI tax reports and payments are due by the last day of the months of April, July, October, and January. In other words:

Quarter

Due No Later Than Midnight

January 1 to March 31

April 30

April 1 to June 30

July 31

July 1 to September 30

October 31

October 1 to December 31

January 31

You can file your reports and payments online or on paper. To file online, use South Dakota’s Unemployment Insurance Online Tax Reporting System. To file on paper, use Form 21, Employer’s Quarterly Contribution, Investment Fee and Wage Report. The proper reporting forms are mailed during the last week of each quarter to all employers who:

  • filed a paper report for the previous quarter, or
  • are filing a report for their first quarter in business.

You can download copies of Form 21 from the Forms section of the DLR website. Employers who file electronically will not receive a form in the mail. It is your responsibility to file a report during the month it is due, even if you do not receive a form in the mail. If you file online, you can pay either online or by mail. Online payment options include Electronic Funds Transfer (EFT) and credit card.

You must file reports even if no wages were paid. You will be subject to a penalty if you fail to file.

Post a Notice (Poster)

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 covered under South Dakota’s UI law, and provides basic information about who may be eligible for unemployment benefits and how to file an unemployment claim. You can download the required Notice to Employees from the Posting Requirement section of the DLR website that meets all legal requirements.

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 South Dakota UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and DLR websites for the latest information. DLR also has a helpful publication,Unemployment Insurance Handbook for Employers, that you can download from the UI Tax section of the DLR 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 here on Nolo.com.

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