South Dakota Unemployment Insurance Tax Frequently Asked Questions

Yes. All new and acquired businesses in South Dakota are required to register with the Unemployment Insurance (UI) Tax Unit. Registration is also required for an existing account if the entity or ownership of the business has changed, i.e. from a sole proprietorship to a partnership or a partnership to a corporation, etc.

How do I register?

It is your responsibility to complete a registration form, Form 1, Employer's Report to Determine Liability. If you are a 501(C)(3) organization, complete Form 1NP. Political subdivisions should complete Form 1PS.

You may complete the registration process online at Unemployment Insurance Registration, or you may download the appropriate form at UI Tax Division Forms. The forms may also be obtained by calling the Unemployment Tax Division at 605.626.2312.

To submit your completed form by mail, address it to:

Unemployment Insurance Division - Tax Unit
SD Department of Labor and Regulation
P.O. Box 4730
Aberdeen, SD 57402-4730

Or fax it to:
605.626.3347

It is important that you complete all information on the registration form. Incomplete registrations will be returned. This will delay processing time and may cause your taxes to become delinquent.

Do I have to pay UI taxes?

Employers are subject to unemployment insurance (UI) tax if they meet one of the following criteria:

Employed one or more individuals (full- or part-time) in 20 different calendar weeks in the current or preceding calendar year;
Paid wages of $1,500.00 or more in a calendar quarter in the current or preceding calendar year;
Are covered under Federal Unemployment Tax Act (FUTA);
Acquired all or a portion of a covered business;
Paid wages for agricultural employment of $20,000 or more in a calendar quarter or employed 10 or more individuals for some portion of a day in each of 20 different calendar weeks in the current or preceding calendar year;
Paid wages for domestic employment of $1,000 or more in a calendar quarter in the current or preceding calendar year; or
Have proof of 501(c)(3) non-profit status with IRS and employed four or more individuals in 20 different calendar weeks in the current or preceding calendar year.

I am an out-of-state employer. When am I required to report to South Dakota?

If your out-of-state employees work in South Dakota for ninety days or less they should be reported to your home state. If you hire SD residents to work for you in SD you should report them to South Dakota (regardless of work duration).

If you hire a SD resident to work in another state, they should be reported to the state where the work is being performed, not South Dakota. If their work is not localized to one state (i.e. truck drivers, salespeople, etc.) they should be reported to the state where they receive their direction and control. Do not report based on residency. Report based on where the work is being performed.

Do I have to pay state unemployment if I already pay federal unemployment?

Yes. In most cases, paying state unemployment actually works to your advantage. If you are current with your state unemployment (reports and taxes) you are allowed to take a credit against your federal unemployment. This credit reduces the federal unemployment you pay from 6.0% to 0.6%.

What happens once I've submitted my registration?

Once your completed registration is submitted it will take approximately two to three weeks to assign an account number and tax rate. This information will be mailed to you in a new employer's packet, along with a determination notice. If you register online, you will receive your account number and tax rate immediately if you are subject to the tax.

What happens if I register, but also have previous quarterly wage reports due?

If you are submitting a registration now, but realize that you were liable for previous quarters you should either:

Print the Employer's Quarterly Contribution, Investment Fee, and Wage Report and mail it along with your registration. See the tax rates tables below for the correct tax rate to use.

Call the Unemployment Insurance Tax Unit at 605.626.2312 to have a report faxed to you.

Fax a request to the Unemployment Insurance Tax Unit at 605.626.3347 to have a report faxed to you.

If you wait to have the wage report mailed to you with an account number, you may incur additional penalties and interest.

What is my tax rate?

If your business is new, see the table below.

New Employer Rates
	UI Tax		Investment Fee	Surcharge
	Non-Construction	Construction
Year 1	1.2%	6.0%	0.55%	See surcharge rate table.
Years 2 & 3 (with a positive account balance)	1.0%	3.0%	0.55%

If your business has been established for more than three years, see the rate information below.

After three years of employment, each employer's rate is calculated annually and is based on prior experience with employment and unemployment claims. The rate is based on the reserve ratio, which is a measure of the balance in the unemployment account compared to taxable payroll for the three prior years. The reserve ratio is determined by dividing the balance in the experience rating account by the total taxable payroll for the three prior years. The following are reserve ratios and corresponding rates (SDCL 61-5). South Dakota law also contains a "hold harmless" clause. It provides that your investment fee rate can be no greater than your 1987 fee rate, if your account had a positive balance at the end of the last two years.

Unemployment Insurance (UI) Contributions	UI Reserve Ratio
0.0%	2.5% and over
0.1%	2.0% and less than 2.5%
0.2%	1.5% and less than 2.0%
0.35%	1.25% and less than 1.5%
0.5%	1.0% and less than 1.25%
1.0%	0.75% and less than 1.0%
1.25%	0.5% and less than 0.75%
1.5%	0.0% and less than 0.5%
2.0%	-0.25% and less than 0.0%
2.5%	-0.5% and less than -0.25%
3.0%	-0.75% and less than -0.5%
3.5%	-1.0% and less than -0.75%
4.0%	-1.5% and less than -1.0%
4.5%	-2.0% and less than -1.5%
5.0%	-2.5% and less than -2.0%
5.5%	-3.0% and less than -2.5%
6.0%	-3.5% and less than -3.0%
6.5%	-4.0% and less than -3.5%
7.0%	-4.5% and less than -4.0%
7.5%	-5.0% and less than -4.5%
8.0%	-5.5% and less than -5.0%
8.5%	-6.0% and less than -5.5%
9.0%	-6.5% and less than -6.0%
9.5%	Less than -6.5%

Beginning January 1, 2011:

Investment Fee	Investment Fee Reserve Ratio
0.0%	1.6% and over
0.1%	1.5% and less than 1.6%
0.2%	1.4% and less than 1.5%
0.3%	1.3% and less than 1.4%
0.4%	1.2% and less than 1.3%
0.5%	1.0% and less than 1.2%
0.53%	Less than 1.0%

An unemployment insurance tax surcharge is a permanent part of South Dakota law; it automatically goes into effect when the UI Trust Fund balance is below $11 million at the end of any quarter. There has not been a surcharge since third quarter 2010. Should a surcharge become effective at a future date, all affected employers will be notified by mail.

Surcharge Rate Table
Year	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
2009	0.0%	0.0%	0.0%	1.5%
2010	1.0%	1.0%	0.1%	0.0%
Should a surcharge become effective at a future date, this table will be updated and employers will be notified by mail at that time.

What is the Unemployment Insurance Taxable Wage Base?

Employers must report all wages paid to each employee in each quarter on their quarterly reports. However, tax is only accessed on each employee's wages up to the annual taxable wage base per calendar year. Individual employee wages greater than the annual taxable wage base are considered "excess wages" (i.e., wages in excess of the employee's annual base wage).

Taxable Wage Base*
2009	2010	2011	2012	2013	2014	2015 & after
$9,500	$10,000	$11,000	$12,000	$13,000	$14,000	$15,000

*All rates and wage bases subject to change by the South Dakota Legislature.

What is an independent contractor?

Services performed by an individual for remuneration is covered employment unless the following two conditions are met, per South Dakota Codified Law 61-1-11:

The worker is free from control or direction of the performance of the contract for services, and

The worker must be engaged in an independently established trade, occupation, or business.

For more information on determining whether an individual is a contractor or employee, see the Independent Contractor vs. Employee Fact Sheet (in Adobe. pdf format*).

Are day laborers or casual labor reportable for unemployment?

Yes. South Dakota statute requires all employment be reported, regardless of duration.

Do I have to report corporate officer wages?

Corporate officers are considered employees for unemployment insurance tax purposes. When a shareholder employee of an S corporation provides services to the S corporation, reasonable compensation generally needs to be paid. Reasonable compensation to shareholder employee(s) must be declared before a non-wage distribution may be made to that shareholder employee. This compensation is subject to unemployment insurance taxes.

What records must an employer keep?

For each employee, you should have the following records:

Full name and social security number;
Places of work within South Dakota;
Date hired, rehired, or returned to work after temporary or partial layoff;
Date of termination of employment;
Information covering the termination, including if the termination occurred by voluntary action of the individual, or by discharge, and complete reason for the termination;
The cause of all time lost due to unavailability for work occurring within any week;
Hours worked and wages earned in each pay period, and the total wages for all pay periods ending in each quarter of the year, including the cash value of the other remuneration, and the amount of all bonuses or special commissions;
Hours worked and wages earned in exempt employment.

Should wages be reported in the quarter they are earned or the quarter paid?

All wages are to be reported in the calendar quarter they are paid to the worker.

Does South Dakota accept electronic fund transfers (EFT) or credit cards?

Yes. If you use the Internet Unemployment Report to submit the Employer's Quarterly Contribution, Investment Fee and Wage Report you have the option of paying your amount due using Electronic Funds Transfer (EFT). EFT payments are only accepted at the time you file your quarterly report.

Credit Card payments are not accepted at this time but anticipated to be an option in the near future. Call 605.626.2312 with questions.

Does SD allow common paymasters?

The state of South Dakota does not recognize common paymasters (related corporations or companies reporting all payroll under one account). Although the federal government does recognize common paymasters, South Dakota requires that each entity file its own reports. A company may not include wages from a number of entities under one account.

Can I obtain federal unemployment forms from the SD Unemployment Tax Unit?

No. We are a state agency and do not have the federal unemployment forms (form 940). You must contact the Internal Revenue Service (IRS). They may be reached at 800.829.4933 or through a local IRS office. All IRS forms are also available on their website at www.irs.gov. They will also be able to answer any questions you have on these forms.

What is negative interest?

Starting in 2009, employers with an experience rating account which has a negative balance may be assessed interest on the negative balance.

Background

In 2006, the South Dakota Legislature adopted a comprehensive package to put the South Dakota Unemployment Insurance Trust Fund on a path to improved solvency. One of the pieces was an assessment of interest on experience-rating accounts that have maintained a negative balance.

The South Dakota Unemployment Insurance Trust Fund is held by the U.S. Treasury, where it earns interest. In 2007 the average interest earned was 4.82 percent. The South Dakota Legislature decided that employers whose experience-rating account balances were negative and had become more negative compared to the balances as of December 31, 2006 will be
charged interest equivalent to the interest rate earned by the Trust Fund.

Details

For those employers whose experience-rating account has had a negative balance at the end of each quarter for the last two calendar years and whose balance is more negative now than it was as of December 31, 2006, their account will be assessed interest at a rate equal to the rate the U.S. Treasury pays on the Trust Fund.

During March of each year, those employers will receive notice of interest due. The interest is payable in four equal payments due on the last day of each quarter. Effective July 1, 2011, this interest payment is credited to your Unemployment Insurance Experience-Rating Account. Negative account balances prior to December 31, 2006 will be not charged.

Example

If your account balance at rating time for the 2009 tax rates is a negative $2000 and if your account balance on December 31, 2006 was a negative $1000, you will pay interest on the $1000 difference. The average 2008 interest rate earned by the Trust Fund (4.78 percent) times $1000 equals $47.80. Rate schedules for employers who maintain a positive account balance will not change.

Unemployment Insurance Division - Tax Unit
South Dakota Department of Labor and Regulation
P.O. Box 4730
Aberdeen, SD 57402-4730
Phone: 605.626-2312
Fax: 605.626.3347
email

You may also or contact your local tax representative. (See Field Locations and Contact Information for your nearest tax representative).

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Pamela S. Roberts, Secretary
700 Governors Drive
Pierre, SD 57501-2291
Tel. 605.773.3101
Fax. 605.773.6184

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