No small business owner wants to think about their company going under. But, planning ahead can help you prepare for the worst possible scenario—unemployment. Millions of people claim unemployment benefits each year in the United States. You might wonder if you can receive these benefits as a business owner. You must understand the rules on self-employed unemployment.
Employees who lose their jobs (through no fault of their own) can receive financial assistance through unemployment insurance benefits. The unemployed worker’s state provides payments, which are a percentage of what the individual would receive if they were employed. The unemployed individual must meet certain qualifications that are determined by the state.
Employers are required to pay for unemployment insurance in the form of two types of taxes: FUTA and SUTA. FUTA (Federal Unemployment Tax Act) and SUTA taxes are typically employer-only taxes, meaning employees do not pay.
FUTA tax is a percentage of each employee’s wages. The regular FUTA tax rate is 6% on the first $7,000 of each employee’s wages ($420 per employee), but you might qualify for a tax credit up to 5.4%. This means your FUTA tax rate would only be 0.6% on the same wage base of $7,000 ($42 per employee).
The SUTA tax rate is determined by the state. And, the wage base varies by state. SUTA tax rates are based on factors like your experience and industry. For more information, check with your state.
Does a business owner have to pay unemployment insurance tax if they don’t have any employees? You must pay for unemployment insurance only when you have employees. If you misclassify an employee as an independent contractor or do not register new hires with the state, they cannot receive unemployment benefits, and you will be penalized.
Self-employment depends on your business structure. Sole proprietors, partners, and limited liability company (LLC) owners are typically considered self-employed. Independent contractors are also considered self-employed. Generally, as a business owner, you are self-employed unless your business is incorporated.
When you are self-employed, you do not receive wages or have taxes taken out by an employer. You pay yourself from your business without withholding payroll (FICA tax) and income taxes. Instead, you are required to pay estimated taxes, which include self-employment and income taxes.
So the question is … can someone who is not an employee receive unemployment?
Patriot designed its payroll software for small business owners