Who Pays Unemployment Insurance Taxes
Who is required to pay unemployment taxes?
In Arizona, most employers are required by law to pay unemployment taxes on the first $7,000 in gross wages paid to each employee in a calendar year. An employer can be an individual, partnership, corporation, limited liability company or any other entity for which a worker performs services. If you meet one of the following conditions, you are an employer required to pay unemployment taxes:
- Pay wages of at least $1,500 during a calendar quarter, or
- Employ at least one worker for some part of a day in each of 20 different weeks in a calendar year, or
- Acquire the business or part of the business of an employer already subject to unemployment taxes, or
- Are required to pay Federal Unemployment Tax because you employed any individuals in any other state or for any other reason, or
- Own or control two or more businesses in Arizona which together meet any of the other conditions described here, or
- Pay domestic/household workers at least $1,000 cash wages in a calendar quarter, or
- Pay agricultural workers at least $20,000 cash wages in a calendar quarter, or employ at least 10 agricultural workers for some part of a day in each of 20 different weeks in a calendar year, or
- Are a nonprofit organization exempt under section 501(c)(3) of the Internal Revenue Code, and employ four or more individuals for some part of a day in each of 20 different weeks in a calendar year, or
- Voluntarily elect to provide unemployment coverage to your workers even though it is not required, or
- Are a leasing or temporary services business which leases or provides workers to other businesses, or
- Are an Indian tribe, or are any subdivision, subsidiary, or business enterprise wholly owned by such Indian tribe.
When you meet one of the above conditions during a calendar year, you must report all gross wages and pay taxes on all taxable wages you paid during that entire calendar year. You must continue paying taxes each subsequent calendar year until your account is terminated.
What is a successor employer?
When you acquire all or part of a business that was required to pay unemployment taxes in this state, you are a "successor" for unemployment tax purposes. As a successor, you are immediately liable for unemployment taxes regardless of the amount of wages you pay or the number of workers you employ.
As a successor, you may also take into account wages paid by the former owner in determining the amount of wages on which you must pay taxes during the year in which you acquired the business. For example, if the former owner has paid wages in excess of $7,000 to a worker you continue to employ, you will not have to pay taxes on any additional wages you pay this worker in the year you acquire the business.
Acquisition of an entire Arizona business
When you acquire an entire Arizona business and continue its operation, you are assigned the tax rate and experience rating account of the former owner, although you will receive a different account number. The experience rating account includes the record of wages and taxes previously paid.
Therefore, any unemployment benefits awarded based on wages paid by the former owner may be charged to your account. Additionally, you may be liable for taxes unpaid by the former owner.
When acquiring a business, determine and consider whether any unemployment taxes remain unpaid by the seller.
Acquisition of a portion of an Arizona business
If you acquire a portion of an Arizona business and continue to operate it, you are not automatically assigned the tax rate and experience rating account of the former owner. To apply for a portion of the account and its corresponding tax rate, you must file an Application & Agreement for Severable Portion Experience Rating Transfer (300 KB PDF) within 180 days of acquiring the business. The former owner must agree and provide payroll information for the portions of the business acquired and retained. Your account may then be charged for a portion of the unemployment benefits paid to the former owners employees.
Termination of Unemployment Insurance Coverage and Tax Account
After you become liable for unemployment insurance coverage, your liability continues until it is terminated. Your coverage, and along with it your tax account, may be terminated if you make a written request for it between January 1 and March 31, and you did not meet any of the applicable conditions that require payment of unemployment taxes in the prior calendar year. Your coverage and account will also be terminated if you transfer your entire business to a successor employer. Termination of your coverage and account does not relieve you of liability for unpaid taxes. If at any time after termination you meet any conditions requiring you to pay unemployment taxes again, you cannot reopen your previous account, but must apply for a new one.