Do S-Corp owners pay unemployment taxes?

 

The short answer is yes.

At the federal level, corporate officers are subject to FUTA (federal unemployment) and must pay in just like any other employee.

At the state level (in Washington state), the story is different. Corporate officers are automatically exempt from SUTA (state unemployment). However, they can fill out a Voluntary Election Form to elect in to state unemployment, if they so choose.

 

How much is the tax?

The federal unemployment tax rate is 6% on the first $7,000 in wages, leading to an annual maximum tax of $420.00.

If you choose to pay in to State Unemployment, you will be granted a tax credit for for MOST of the Federal Unemployment you owe. This credit lowers the FUTA rate to .6%, meaning you will owe a maximum of $42.00 to the feds.

The state unemployment rate varies.  It depends on the nature of your business and the history of your employees' claiming unemployment.  The average rate is Washington is 1.1% and the lowest possible rate is .1% up to a maximum of $52,700 in 2020. That means an average annual tax of $580 and a lowest possible amount of $52.70.

 

Is it worth it to pay into state unemployment in order to take the federal credit?

The short answer is no.

But the longer answer is, it depends on your state unemployment rate.

When you do the math, it turns out that if your state unemployment rate is less than .72%, then it will probably be better for you to opt into state unemployment rather than paying the federal rate.  You can check your rates at your Secure Access WA account.  That is--if you are even registered with the State Unemployment Department.  You may not be, if you are the only employee of your S-Corp.

Generally, just the cost of registering with the ESD and staying in compliance with yet another set of taxes are probably not worth the minimal tax savings.

If you still have questions or want some help sorting out your situation, get in touch and let us know what's on your mind!

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