Eligible Employee Rules

• If you're an eligible employee applying for benefits, the state must have proof of your employer paying unemployment insurance premiums to process your unemployment claim. Without this information, your state's unemployment compensation department doesn't have a record of your employer's tax liability and must obtain this information before proceeding with your claim. Failing to pay required unemployment premiums and taxes as required by state law is illegal — report your former employer to appropriate state tax agencies upon finding out your employer hasn't paid.
  
  

State Employer Investigation

• The state you work in conducts an investigation of your former employer to determine if the employer must pay unemployment taxes, as well as the extent of the employer's liability. Your unemployment benefits claim must usually wait until the appropriate state agencies finish the investigation. If the state determines the employer is liable, the employer must immediately pay all taxes owed or face stiff collection penalties, including the levying of bank accounts and the placing of liens on the employer's property. It's not your responsibility to pay unemployment taxes or premiums for your former employer: If your former employer approaches you for money to pay unemployment taxes, immediately report the employer to the appropriate state tax authorities.
  
  

Unemployment Penalties and Fees

• If your former employer refuses to make payments to the state for unemployment taxes and premiums, he may face increased interest charges and higher monthly rates. The state may also hold him personally liable for unemployment tax debt, regardless of the existence of a corporation or limited liability company that would otherwise protect the employer's personal assets. This may cost your former employer his home and personal bank accounts if he refuses to make the required tax payments. The presence of delinquent tax debt may also affect your previous employer's credit rating and make it difficult to secure new loans and lines of credit.
  
  

Independent Contractor Rules

• As an independent contractor, you're not eligible to receive unemployment benefits from your state because you're not a traditional employee who pays taxes on your own. If your employer or client only hires independent contractors to perform job tasks, the employer has no legal requirement to pay into the state unemployment system. The employer faces no penalty from a state tax agency, though you may be able to sue under the terms of your work contract if your employer terminates you in violation of any clause in the agreement.