4 Smart & Simple Ways to Lower Your Unemployment Tax

Amanda Hagerty
Reading time 3 Mins
Published on Nov 28

As an employer, you must pay your applicable state and federal unemployment taxes. While each state has their own payroll/wage tax table, the State Unemployment Tax Act (SUTA) and Federal Unemployment Tax Act (FUTA) are expenses most companies just accept as a required cost of doing business. However, you have more control over what you pay in SUTA and FUTA taxes than you may realize.

1. Lower turnover means lower taxes.

You pay taxes on wages paid up to your taxable wage base, so the lower your turnover rate, the lower your taxes will be. (Note: for 2016, the federal taxable wage base is the first $7,000 paid in wages to each employee during a calendar year, and state wage base ranges from a low of $7,000 to as much as $44,000.) For example, Jimmy makes $5,000 per month working for an Ohio employer. The Ohio taxable wage base is $9,000 so his employer will have paid their SUTA tax on him by end the February. If Jimmy leaves in March and Jenny is hired, this employer now needs to pay SUTA taxes on Jenny for the first $9,000 of her wages.

2. Your statement may be wrong, and it can cost you!

Don’t assume that the rates and details you get on your statement is accurate. The over payment of unemployment benefits is actually more common than many people realize. According to the United States Department of Labor, the states with the highest improper payment rates are Maine, North Carolina, Tennessee, New Mexico, Nevada, and Wisconsin with rates above 14%. Claim activity should be reviewed monthly and questionable charges should be protested.

3. Buy down your rate with a voluntary contribution.

More than half of states allow businesses to voluntarily pay into their state unemployment insurance (UI) fund to lower their tax rate. This “voluntary contribution” is a strategic decision that should be evaluated each year when you review your tax rate notice as there could be substantial savings opportunities.

4. Multiple companies can be grouped for lower rates.

If you have several companies, you may be able to lower your rates by grouping your companies together to get a “common rate” across all your businesses. This could be worth considering as long as:

  • you have at least 51% common ownership between the companies;
  • you’re experience rated (meaning you can’t still be at the new employer rate); and
  • you don’t have a negative ending balance in your unemployment account.

There are other considerations, like if you plan on selling a company or making other changes, that could mean it would be better to not be commonly rated. However, you should at least consider this option to see if you can get a lower rate. The Sheakley unemployment service team can help you evaluate your situation and find the best solutions.

End the year right by reviewing each of these options so you can start the new year with your best unemployment rates.

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