It’s rare for companies to have the opportunity to reduce any tax rates, especially considering federal and state budget constraints. However, the Wisconsin Division of Unemployment gives employers the option of making an extra payment to their unemployment account for the purpose of lowering their future Wisconsin unemployment rate. This is an often overlooked opportunity to save tax dollars and the offer will expire Monday, Nov. 30.
The voluntary contribution is a payment over and above an employer’s required quarterly state unemployment taxes which directly affects the account balance used to determine that employer’s 2010 unemployment tax rate. Businesses may only submit a voluntary contribution once per year in November. At a time of economic challenges, all employers should consider this any opportunity to trim a little overhead from next year’s budget.
While it is not always advantageous to make a voluntary contribution, the calculation is straight forward and can yield cost savings. There are many businesses where the benefit of a voluntary contribution could be significant, including the following:
- Company that is extremely close to the next rate bracket: E.g. A company whose current balance is 5.99% could potentially make a very small voluntary contribution to lower next year’s rate. It’s the extreme, but we have seen voluntary contributions of $10 that have saved thousands in unemployment taxes.
- Business that expects large increase in employees in 2010: Since the future rate is based on prior wages, the voluntary contribution for a 10 employee company is generally well less than that of a 50 employee company. However, if the 10 employee company expects to become a 50 employee company next year, it can do so at a much lower price tag.
- Employer who has had little unemployment in the past but expects claims in 2010: An employer rate can only increase a limited amount from year to year and the rate is basically based on unemployment experience. Therefore, buying down to a lower rate in 2010 could also carryover to a lower rate in 2011.
In addition to the above situations where it likely benefits employers, there are other situations where a voluntary contribution either does not yield benefit or is restricted by statute, including those expecting decreased payroll in 2010, some employers with significant negative unemployment reserve account balance, and employers whose total rate increase is limited by the maximum rate increase restriction.
There is more to the calculation than the simple math so we recommend employers contact a qualified professional advisor for guidance. Alternatively, all employers can contact the Wisconsin Department of Workforce Development Employer Tax Information Line at (608) 261-6700, where an unemployment compensation service representative will provide individual assistance. Employers can also get more information at the DWD’s website and there’s even a cost/benefit worksheet available (http://dwd.wisconsin.gov/dwd/forms/ui/pdf/uct_15393.pdf).
Most companies received their 2010 unemployment tax rate notice in the last week of October and the deadline for a voluntary contribution is November 30th so now is the time to act.
Michael Burzynksi, CPA, is a partner with Komisar Brady & Co. LLP in Milwaukee.