If your small business has employees working in Washington, you’ll need to pay Washington unemployment insurance (UI) tax. The UI tax funds unemployment compensation programs for eligible employees. In Washington, state UI tax is one of the primary taxes that employers must pay. Unlike most other states, Washington 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 Washington’s UI tax.
As a Washington employer, your small business must establish a Washington UI tax account with the state’s Employment Security Department (ESD). More specifically, you need to file a Business License Application with the state’s Business Licensing Service (BLS). The BLS notifies the ESD regarding the information on your application that relates to employees.
You can register with the BLS either online or on paper. Once registered, you’ll be issued an Employment Security (ES) Number. (The ESD cautions that you should not confuse this number with a Unified Business Identifier (UBI) number, which may also be issued to your business by the state.) To register online, go to the Business License Application page on the BLS website. To register on paper, complete Form BLS-700-028, Business License Application. Blank forms are available for download from the Forms section of the BLS website. BLS charges a minimum $19 fee to process the application.
Note: To establish your Washington 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, Washington law does not state a minimum amount of wages that must be paid for an employer to be liable for state UI tax. Instead, employers are held liable simply if they have an employee. By comparison, under the Federal Unemployment Tax Act (FUTA), typical for-profit employers generally are liable for federal UI 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 against your FUTA taxes.
UI tax is paid on each employee’s wages up to a maximum annual amount. That amount, known as the taxable wage base, increases slightly every year in Washington. In recent years, it has exceeded $42,000.
The state UI tax rate for new employers, also known as the standard beginning tax rate, also is subject to change from one year to the next. As a new employer, your Washington UI tax rate will depend on what kind of business you’re in—or, more technically, what “industry” you’re in. The details are complicated. However, in simple terms:
The NAICS was created by the federal government to classify and analyze statistics for different kinds of businesses. Washington, however, uses the average tax rate for each of these kinds of businesses to assign a UI tax rate to new employers.
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. Minimum and maximum rates for established employers can vary each year, but in recent years they generally have ranged from below .2% to near 6%.
For the most current wage base and tax rate information, check the ESD website.
In Washington, UI tax reports and payments are due by the last day of the month following the last day of each quarter. In other words:
If the due date falls on a weekend or state holiday, a report and payment may be postmarked the following business day.
You can file your reports and payments online or on paper. To file online, you can use either the Employer Account Management Services (EAMS) system or the UIWeb Tax system. Each of the latter two systems has different options; for more details, check the Employer Taxes section of the ESD website.
To file on paper, you must use the ESD’s original forms, because they use a unique ink that allows them to be scanned into the ESD’s computer system. To obtain forms, you’ll need to contact the ESD by phone or email. You can find more information by going to the Paper Tax Forms page on the ESD website.
You can pay your taxes online using the ESD’s ePay system. You can also mail in your check with a payment voucher that’s available by contacting the ESD.
As long as your account has an Active Status with the ESD, you are required to file a Quarterly Tax and Wage Report, even if you only file a No-Payroll report. 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 place convenient for employees to read. The poster provides basic information on how an employee can apply for unemployment benefits. You can download a notice that meets all legal requirements (Stock Number 4427/ BEN-57) from the Forms and Publications section of the ESD 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 Washington UI taxes. Avoid possible penalties for making mistakes by checking both the IRS and ESD websites for the latest information. The ESD also publishes a handbook for employers that you can download from the Employer Taxes section of the ESD 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.