Employer's Guide to Unemployment Insurance Tax in Virginia

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

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

Register With the Virginia Employment Commission

As a Virginia employer subject to UI tax, your small business must establish a UI-related tax account with the Virginia Employment Commission (VEC). You should register with the VEC if you think your business will be liable for UI taxes (see below). You can register for an account with the VEC either online or on paper. Once registered, you’ll be issued a VEC account number.

To register online, use the VATAX Online Services for Businesses webpage, which is part of the Virginia Department of Taxation (DOT) website. To register on paper, use Form FC-27, Report to Determine Liability. Blank forms are available for download from the Forms/Publications section of the VEC website. There is no fee to register your business with the VEC.

Note: To register for a Virginia 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

In Virginia, most for-profit employers are liable for state UI taxes if they are liable for federal UI taxes under the Federal Unemployment Tax Act (FUTA). This means you generally will be liable if you meet any of the following conditions:

  • you have one or more employees who work for any portion of a day in twenty different weeks in a calendar year
  • your total gross payroll for any calendar quarter is $1,500 or more, or
  • you acquire a business that is liable for UI taxes.

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. In recent years that amount, known as the taxable wage base, has been stable at $8,000 in Virginia. However, it’s always possible that amount could change.

The state UI tax rate for new employers, also known as the standard beginning tax rate, also changes from one year to the next. In recent years, it has been comprised of a Base Tax Rate that’s been steady at 2.5%, plus so-called add-ons, consisting of a Pool Cost Charge and Fund Building Charge. Both of the latter charges, which fluctuate each year, are much less than 1%. In recent years, the overall beginning rate has been roughly between 2.85% and 3.25%. The new employer rate usually applies for at least one year.

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.

For the latest wage base and tax rate information, check the VEC website.

File Quarterly UI Tax Reports and Payments

In Virginia, UI tax reports and payments are due at the end of the month following the end of a calendar quarter. In other words:

Quarter

Due Date for Reports and Payments

1st (January, February, March)

April 30th

2nd (April, May, June)

July 31st

3rd (July, August, September)

October 31st

4th (October, November, December)

January 31st

Larger employers (100 or more employees) must file quarterly reports electronically (online). Smaller employers can file online or on paper. To file online, use the DOT’s VATAX Online Services for Businesses webpage. To file on paper, use Form VEC FC-20, Employer’s Quarterly Tax Report, and Form VEC FC-21, Employer’s Quarterly Payroll Report. You can download blank forms from the Forms/Publications section of the VEC website.

You can make payments online using Automated Clearing House (ACH) debit. You can also pay with a check. You should download and print out a Payment Coupon if sending a check without a report.

You must submit quarterly reports (with any appropriate payment) by the due date even if no wages were paid during the calendar quarter. 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 place visible to all workers. The poster provides basic information on who is eligible for unemployment benefits and how to file an unemployment claim. You can download a notice that meets all legal requirements (Form VEC B-29, Notice to Workers) from the Required Posters section of the VEC website.

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 Virginia UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and VEC websites for the latest information. The VEC also has a helpful online publication, Virginia Employer’s Handbook, that you can access from the Forms/Publications section of the VEC 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.

Talk to a Tax Attorney

Need a lawyer? Start here.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
FEATURED LISTINGS FROM NOLO
Swipe to view more
NEED PROFESSIONAL HELP ?

Talk to a Tax attorney.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you