Self Employment Taxes

• Self employed individuals must pay twice the rate of payroll taxes than their employed counterparts. Usually, an employee's 6.2 percent contribution to Social Security and 1.45 percent contribution to Medicare are withheld from the employee's earnings. The employer then contributes an additional 6.2 percent of wages earned for Social Security and another 1.45 percent for Medicare. The self employed individual must contribute both portions for a total of 15.3 percent.
  
  

Unemployment Tax

• Federal unemployment taxes (known as FUTA), and state unemployment taxes (known as SUTA) are paid by employers. Unemployment tax acts as a type of insurance against the chance of becoming unemployed. The tax is paid based on the earnings of each currently employed individual. When an employee becomes unemployed, the benefits are paid out of the funds contributed by these currently working individuals.
  
  

Unemployment and Corporations

• If your small business is organized as either an S-corp or a C-corp, by law a corporation must have at least one employee. That employee of the corporation is the major shareholder, or owner of the business. Since you must technically be considered an employee, you will be responsible for paying the payroll taxes and the unemployment taxes for yourself. An S-corp or C-corp is a separate legal entity from the major shareholder or owner. As an employee of the corporation, if you have paid the unemployment taxes, and if you qualify for receiving unemployment, you will be eligible to collect.
  
  

Unemployment and Sole Proprietorships

• If your business is organized as a sole proprietorship or partnership, it will depend on the laws of your state as to whether you may collect self-employment. As long as you are paying the payroll and unemployment taxes, FUTA and SUTA, you should be able to file for and collect. It is much more difficult however, to get approved to qualify for unemployment compensation. If you are not eligible in your state to collect benefits, you may want to consider using a private unemployment insurance company.
  
  

Unemployment and Natural Disasters

• If you are in a state that does not allow a sole proprietor to collect unemployment, if there has been a disaster declared by the President and that disaster results in your becoming unemployed, you may be able to file for and receive benefits. If you have been collecting unemployment compensation and your state has experienced a disaster, you may qualify for an extension of benefits. Check with your state unemployment agency for more information.