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Unemployment Voluntary Contribution

Question:

We just received the Unemployment Tax Notification.  Should I pay the voluntary payment to reduce my rate? How do I calculate if a voluntary payment is beneficial?

Answer:

A voluntary payment to reduce your annual unemployment tax rate can be a great option for tax contributing employers. It gives you the opportunity to make a onetime payment to Job and Family Services to lower your annual unemployment rate.

To calculate the benefit take the difference between your current rate and the optional reduced rate and multiply it by your taxable wage base. If the number is higher than the voluntary payment, it is a good idea to seriously consider making a voluntary payment.

Example: Your 2017 Total Contribution Rate is 2.5%, if you pay $962 you can reduce your rate to 2.3%. Your taxable wage base has been increasing and last year’s (07/01/2015 through 06/30/2016) was $234,761

2.5% – 2.3% = .2% x $234,761 = $469.52 which is LESS than the $962 cost to buy down. In this scenario a voluntary contribution would not be recommended unless the taxable wage base is expected to increase to over $481,000 (voluntary contribution/difference in rate = $962/.002= $481,000).

Additional things to consider:

  • Is your taxable wage base increasing or decreasing? This will impact your savings. The higher your taxable wage base, the higher potential savings
  • Have you looked at Common Rating? If you have more than one unemployment account number, Common Rating may provide even further savings
  • What states are you located in? Unemployment discount opportunities vary state by state—voluntary contributions and Common Rating may or may not be good options in your state

If you have any further questions or would like a free analysis of your tax rate notice(s), please contact Katie Jones at 513.351.1222 or kjones@matrixtpa.com. Most states require you to take action before December 31.