One incredibly smart way companies turn their UI tax burden into a benefit

Amanda Hagerty
Reading time 2 Mins
Published on Nov 21

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.

How does a voluntary contribution help me save?

In essence, a voluntary contribution allows you to buy down your tax rate. By contributing extra into the state fund, you increase your company’s reserve balance. When a higher reserve is in place, the ratio used in calculating your rates is altered and can result in a lower rate. To determine if this is right for you, compare the contribution needed to reduce your rate to your annual projected tax with your original rate. If the contribution is less, then this could be a smart option for your business.

What do I need to take into consideration?

If you’re working with a service provider like Sheakley, you’ll automatically be evaluated for voluntary contributions and notified if it is an option you should consider. Be sure to tell your administrator if you know the following changes coming, as they can impact your potential savings.

  • Expected increases and decreases in taxable payroll. Your unemployment tax is based on payroll, so changes to both employee count and your state taxable wage base should be considered.
  • Mergers, acquisitions, or reorganizations. Just like organic increases and decreases in taxable payroll, mergers, acquisitions, or reorganizations can impact your taxable wage base. Plus, with mergers and acquisitions, the experience of the other company will need to be considered in how it impacts the new combined rates.

States that currently allow a voluntary contribution are included below. Each state has varying rules around voluntary contributions, so be sure you know what applies to your businesses – deadlines, minimums, maximums, restrictions, etc. Plus, this list changes frequently, so be sure to talk to your unemployment service team to see if you’re eligible.

Arizona, Arkansas, California, Colorado, Georgia,
Indiana, Iowa, Kansas, Kentucky, Louisiana,
Maine, Massachusetts, Michigan, Minnesota,
Nebraska, New Jersey, New Mexico, New York,
North Carolina, North Dakota, Ohio, Pennsylvania,
Rhode Island, South Dakota, Texas, Washington,
West Virginia, Wisconsin


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