COVID-19 Unemployment Insurance Update

Tax Consulting Services

There are two different ways employers can pay their unemployment insurance expenses. For-profit businesses have to pay a UI tax while not-for-profits have the option of either paying the UI tax or electing to become a “benefit reimbursed employer.” Industrial U.I.’s tax consulting services will review the options with clients to determine the best method for them. Since an employer in most states can change the election annually, it is necessary to review the matter periodically. Both options are described in detail below:


Benefit-reimbursement method

A not-for-profit that elects to become a benefit-reimbursed employer pays the state at the end of each quarter in the exact amount paid out in unemployment insurance benefits for that quarter. No additional taxes or costs typically occur. Any not-for-profit that has more than 20 employees should consider being benefit-reimbursed. The underlying question that should be asked is “Has my organization paid more in taxes over the last 3 years than it would have paid as a benefit-reimbursed employer AND will that continue to be the case for the foreseeable future?”


Tax-rated method

Every state has a different formula for calculating an employer’s tax rate as well as a different amount of remuneration subject to the tax (called taxable wage limit). Most states will examine how well the company has handled its UI costs over the past several years (or in some cases the entirety of the business by keeping a rolling balance), and then raise or lower the unemployment insurance tax accordingly. Regardless of how the rate is calculated or how high the taxable wage limit is in a particular state, the company would then multiply the tax rate by the taxable payroll and pay that amount in tax (plus any additional subsidiary taxes or charges based on the state).

The risks and rewards from making a change from tax-rating to benefit-reimbursement should be fully understood before making the transition.

The law in many states allows companies to make a voluntary contribution to lower its UI tax percentage and save money each year. Included in their tax consulting services, Industrial U.I. does an analysis of each employer’s tax-rate account to see if a voluntary contribution would be beneficial.

Most states also allow companies to create joint accounts by combining just the UI accounts of businesses with either common ownership or similar industries. Each state is different and a thorough review of that state’s unemployment laws must be undertaken prior to making such an election. In most cases where allowed, a waiting period takes place over several years before such an account can be dissolved. The employer needs to understand that risk before creating a joint account.

It is crucial that an employer must understand UI implications prior to any merger or acquisition. When a company takes over all or some of the employees during an acquisition, an unemployment event naturally occurs.  A transfer of experience is created and most states will combine the unemployment insurance accounts of the successor (acquirer) and predecessor (acquiree). Both companies need to advise the state of that transaction and allow a recalculation. There may be a significant UI cost to the transaction and both parties need to be aware of it while negotiating the transaction. If the successor doesn’t advise the state of the transfer of experience and instead creates a new company to employ these transferred employees, the state will subject the employer to back taxes owed along with interest.

Call Industrial U.I. today for tax consulting services that will lead you in the right direction. 845-634-4620

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