Tax Tip of the Week – Rising unemployment taxes will soon be shocking employers.

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Unemployment-office With the unemployment rate stuck at ten percent and looking more and more likely to stay there for the foreseeable future – employers are about to be shocked at how much they will have to fork over for state unemployment tax. My rate has tripled even though we have had no unemployment claims. The state is raising rates in order to replenish their unemployment coffers.

And, many employers have had to lay off employees in order to just survive. These employers may see their tax rates increase by a factor of ten or more.

Now employers can no longer ignore this normally minor tax and should take proactive actions to control it. Here are six ways to keep unemployment tax costs under control:

1.   Document poor work performance. If an employer wants to contest an unemployment claim, they will need proof of the employee’s unsatisfactory work or misconduct.


2.   Verify each statement of benefits charged to the account. Promptly answer requests for information to avoid unnecessary benefit charges. Follow up to ensure that corrections are made and penalties are not assessed. Appeal unfavorable decisions as soon as possible.


3.   Expand slowly. If a business crosses state borders, it should do so with a small staff. Don’t add to payroll, if at all possible, until a low claims rate has been established. That will reduce the tax rate when you do expand.


4.   Organize a separate corporation for seasonal workers. That way, the employer won’t have to pay a higher seasonal rate for the entire staff.


5.   File Jointly. If a company has affiliates or subsidiaries, they probably have different turnover rates. If the liability is calculated collectively, it might end up with a net savings.


6.   Make voluntary contributions to the reserve account. Your unemployment rate depends, in part, on its reserve balance which is your tax paid less your claims. A voluntary contribution to the reserve account could result in a lower tax rate. Obviously, you only do this if your savings exceed the amount of the voluntary contribution. If you are planning an expansion this may be a very good option.