ETS Tax Intelligence: New York SUI Savings Opportunities
In February of 2016, it is anticipated that New York state unemployment insurance (“SUI”) tax rates will be issued. Their issuance will create three potential savings opportunities for employers: voluntary contributions, joint accounts, and negative write-offs. Employers must have a plan in place for reviewing and analyzing these opportunities to meet the state’s March 31, 2016 deadline.
New York is one of 26 states that allows an employer to make a voluntary payment (“voluntary contribution”) to increase its reserve account balance. By increasing the reserve account balance, an employer can improve its reserve ratio (i.e., reserve account balance ÷ average annual taxable payroll), which in turn produces a lower SUI tax rate for the calendar year. However, an analysis must be performed to determine if the expected savings from submitting contributions at the lower SUI tax rate is sufficiently higher than the amount of the voluntary payment.
Joint accounts permit two or more legal entities to combine their state unemployment experience to receive a common tax rate applicable to all members of the joint account. In New York, employers can elect to form a joint account for the duration of the current calendar year, depending on what quarter the election is made, plus two additional calendar years (i.e. the “lock-in period”). To maximize savings opportunities, joint account opportunities should be reviewed concurrently with voluntary contributions.
When the unemployment benefits charged to an employer’s SUI tax account exceed the tax or contributions paid and credited to an employer’s account, the result is a negative reserve account balance. If an employer’s negative reserve account balance exceeds 21% of its most recent fiscal year taxable payroll, the portion above 21% is mandatorily transferred (i.e. “written off”) to the New York General Fund. When this occurs, the employer is assigned the maximum SUI tax rate (9.90% for 2015) for the following three years.
However, an employer can elect to make a special payment to avoid a maximum SUI tax rate assignment. An analysis must be performed to determine if the expected savings from submitting contributions at the lower SUI tax rate is sufficiently higher than the cost associated with making a special payment. Employers who must pay careful attention to this provision include those with:
- Organic growth within the state of New York – The addition of new employment (i.e. taxable payroll) within an account can significantly alter the calculation of the savings and can present increased risk to employers assigned the maximum SUI tax rate for three years.
- M&A plans within the state of New York – When an employer acquires the business operations of another employer, a SUI tax rate impact analysis should be performed. As part of the analysis, a negative write-off calculation should be incorporated, if applicable, to prevent an unexpected assignment of the maximum SUI tax rate to an acquiring employer for three years.
Since New York is the only state that mandates the transfer of a portion of an employer’s negative reserve account balance, employers are not often aware of the long-term implications such an action can have, which can be complicated further if write-offs are required for two or more consecutive years.
These New York savings opportunities may present themselves to employers individually or in conjunction with one another and identifying the best option available can require complicated analyses. Using sophisticated techniques and our experience and understanding of the state’s rate calculation methodologies, Equifax assists employers in identifying cost savings opportunities. For more information, please contact Pete Krieshok at (314) 214-7325 or via email at pete.krieshok@Equifax.com. You can also visit our corporate blog for more information on other employment tax matters that might impact your organization.
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