Employer's Guide to Unemployment Insurance Tax in Vermont

If your small business has employees working in Vermont, you'll need to pay Vermont unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Vermont, 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 Vermont's UI tax.

Register With the Department of Labor

As a Vermont employer, your small business must establish a UI tax account with the Vermont Department of Labor(VDOL). You can register for an account with VDOL either online or on paper. Once registered, you'll be issued a VDOL employer account number.

To register online, use VDOL's Employer Registration Application. To register on paper, use Form C-1, Status Report. Blank forms are available for download from the Forms section of the VDOL website. There is no fee to register your business with VDOL.

Note: To establish your Vermont 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 Unemployment Insurance Tax Liability

As a for-profit employer in Vermont, you generally are liable for state UI taxes if you meet any of the following conditions:

• you employ one or more persons during some part of a day in each of at least 20 different weeks (not necessarily consecutive) in either the current or the preceding calendar year in general employment
• you pay at least $1,500 in gross wages during any calendar quarter in either the current or the preceding calendar year, regardless of the number of employees
• you succeed to (take over) the business of another employer already covered under the Vermont Unemployment Compensation law, or
• you are (or become) liable under the Federal Unemployment Tax Act (FUTA) and furnish any employment in Vermont to individuals hired for a specific job in Vermont regardless of the number hired or the number of weeks employed.

The first three listed items effectively are the same rules as under FUTA. Therefore, if your business is liable for federal UI taxes under FUTA, it's likely to also be liable for Vermont UI taxes, and vice versa. Different state and federal 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 about $400 each year in Vermont. Most recently, it has been approaching $17,000.

In Vermont, the state UI tax rate for most new employers, also known as the standard beginning tax rate, has been fixed at 1% since 2004. However, it's always possible that rate could change. The beginning rate remains in effect for an employer's first two years. Established employers are subject to a higher rate than new employers. The rate for a specific established employer will depend on an "experience rating." This means, among other things, how many unemployment benefit payments have been made to former employees of the business. The more benefit payments that are made to former employees, the higher the tax rate (up to a statutory maximum rate).

File Quarterly UI Tax Reports and Payments

In Vermont, UI tax reports and payments are due by the last day of the month following the close of each calendar quarter. In other words:

When the report due date for any calendar quarter falls on a Saturday, Sunday, or a legal holiday, the report and tax payment must be postmarked or filed electronically no later than the next business day to be considered a timely report.

All Vermont employers are required to file quarterly reports online. Additional filing requirements apply to large employers (more than 250 employees). To file, go to VDOL's Employer Online Services website and click on the option to file your quarterly reports. You will need to register with the Vermont Internet Tax and Wage System (VITWS) before you can start using the online report filing system. When filing, you will effectively be providing the information required on Form C-101, Employer's Quarterly Wage and Contribution Report. You can download a template of this form from the Forms section of the VDOL website.

You must file quarterly returns even if no wages were paid. You will be reminded about your obligation to file approximately 40 days before each due date. 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 provides basic information on who an employee should contact to file an unemployment claim. You can download a notice (Form A-24, Unemployment Insurance Poster) from the Forms section of the VDOL 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 Vermont UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and VDOL websites for the latest information. VDOL also has a helpful publication: Employer Information Manual: A Guide to Vermont's Unemployment Insurance Program. You can download a copy from the Forms section of the VDOL 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.