ETS Tax Intelligence: Joint Account Formation
With the recent increase in M&A activity, along with organic expansion, many employers have experienced significant changes in their organizational and legal entity structures. Such changes may make it worthwhile to evaluate your structure for state unemployment taxes to determine whether by obtaining a common rating (a/k/a joint account formation) among multiple legal entities under the same organizational structure can help reduce costs.
The formation of a joint account permits two or more legal entities to combine their state experience rating factors to obtain a single or common unemployment tax rate applicable to all members electing to participate in the joint account. The goal is to optimize the unemployment taxes paid by the members as a whole.
The combination is strictly for rating purposes only and does not require changes to organizational or legal entity structure. Factors used to determine if a joint account is beneficial include:
- Fluctuations in workforce, including those resulting from M&A transactions and internal employee movements between entities.
- All possible legal entity combinations, including unaffiliated legal entities in certain jurisdictions.
- Concurrent use of voluntary contributions to maximize savings.
- Compliance requirements, including application deadlines, minimum duration (“lock-in” period), dissolution provisions, and ownership restrictions.
- Long-term unemployment tax rate impacts.
The table above contains a listing of the states with revocable joint account options for 2016. Other states have joint account provisions, but the “lock-in” period is permanent.
Due to the sometimes narrow timeframe between the rate mail date and the application deadline (such as Ohio, which only offers approximately 30 days) and the complexity of the calculations, it is recommended that employers implement a strategy for performing joint account analyses prior to the date state unemployment tax rate notices are issued. In addition, employers that anticipate the formation of a joint account should make certain that the appropriate individuals are available to review and approve the application to ensure is timely submitted and that a confirmation is received from the state workforce agency evidencing the timely submission.
During calendar year 2014, Equifax identified over $56 million in potential joint account savings for our clients. For more information about joint accounts and to learn whether your organization qualifies for this significant potential savings opportunity, please contact Pete Krieshok at (314) 214-7325 or via email at pete.krieshok@Equifax.com. You can also visit our blog for more information on other unemployment insurance tax matters that might impact your organization.
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