A common misconception is that because of the Federal and State Unemployment Tax Acts (FUTA and SUTA, respectively), employers have no control over how much their pay in unemployment insurance. Not only is this incorrect, but it can also potentially cost a company thousand to millions of dollars in overpayments. It’s time to learn more about your tax rate and what you can do to have some control.
Understanding the Tax Rates
Established with the Social Security Act, both FUTA and SUTA are designed to help workers avoid going through conditions as they experienced in the Great Depression. These benefits are available to employees who are let go at no fault of their own, and the taxes are automatically taken from the employer.
At the federal level, the amount is a flat tax rate applied on the first $7,000 paid to every employee in your organization. It cannot be altered by an employer’s actions. The state taxes, however, are much more complex and take in more factors for consideration.
There are rates that vary by state based on taxable earnings, but it’s more than the different rates. Each state also has its own way of calculating what and the employer will pay, and one consideration is the claims filed and given from an employer, known as benefit charges.
Increasing UI Claims Means an Increase UI Tax Rate
Every claim that is filed from a former employee can result in your tax rate being increased. Think about it this way – if you have more people filing claims in a given year, the system may look at it like you will need additional funds to cover the higher turnover rates in your company, causing your tax rate to be increased. Every individual who files another strike is saying the rate needs to be increased.
While these individual claims can cause significant increases, the issue is more of the long-term implications rather than each employee. The way taxes are assessed means every claim has the potential to affect your tax rates for three years. If you have one year with a larger number of employees filing, you will be paying for that over the course of three years.
Because of this, it is crucial to monitor your claims and benefit charges to avoid overpayments. More than just what you pay out now are the implications if you miss fraudulent claims. By checking those who apply and receive, you can determine if they are actually eligible and protesting a claim if you believe they don’t qualify.
Will My Tax Rate be Affected by Layoffs Related to COVID-19?
Right now, the uncertain circumstances of our world have meant many businesses had to unexpectedly lay off employees who are now filing for UI. Usually, this would mean an increase; however, businesses are being granted a relief of charges for claims that are related to COVID-19.
Proactively keep your rate lower with Unemployment Tracker
When you work with Unemployment Tracker, you experience more control over your payments and tax rates because of better monitoring. Our full range of solutions are designed to meet your specific needs and budgets to deliver the best results. Contact us today to learn more about how we can help you.