Your Ultimate Guide to Unemployment Claims and Tax Season

It’s tax season! This is a busy time for both employers and employees alike as information is gathered, and taxes are filed in conjunction with both federal and state laws. It’s also the perfect time to discuss the unemployment insurance taxes and unemployment claims in tax season.

Start with the basics: Unemployment insurance is paid through employer taxes.

As an employer, you pay federal taxes quarterly based on the number of employees you have and federal tax rates. This money goes into the unemployment insurance fund that assists out-of-work employees. In order to qualify for this money, your former employees must have been let go at no fault of their own, including being laid off.

This system was set up with the Social Security Act in 1935 to avoid some of the devastation workers faced during the 1930s Great Depression in the United States. As unemployment rates rose, there was no way for people to make money, leaving many in poverty. With the Federal Unemployment Tax Act (FUTA), a contingency system was developed. There is also State Unemployment Tax Act (SUTA), and each state has its own system and rates in place.

Reporting taxes: When does my company report FUTA tax to the IRS?

When you’re gathering other tax documents before January 31, make sure you don’t miss Form 940. This is where you will calculate the taxes you paid in the previous year, as well as what you owe now. Both the completed form and remaining balance is due by January 31.

Unemployment benefits recipients: Do I have to provide tax documents to them?

Because unemployment insurance is a form of income, it must be reported when filing taxes. The recipients of such benefits receive an IRS Form 1099-G from their state unemployment division, which means you are not involved with the process.

Still have unemployment tax questions?

This ultimate guide is still just the tip of the iceberg when it comes to the comprehensive world of unemployment insurance. Fortunately, there are TPAs out there to not only assist with managing your UI claims but help you throughout the year with things like taxes and the like. Contact Unemployment Tracker today to get the UI help you need!