By Tom Towson
Evaluating trends in economic indicators helps provide insight into future rates and associated State Unemployment Insurance (SUI) tax costs. In a majority of states, employer-specific factors used in calculating 2020 SUI tax rates will be fixed by June 30, 2019. Some of those employer factors are:
With taxing jurisdictions issuing 2019 tax rates, we are getting closer to being able to accurately calculate employers’ 2020 SUI tax rates.
Total Unemployment or Jobless Rate. During the height of the Great Recession, the U.S. Total Unemployment Rate (“TUR”) was 10.0% in October of 2009. The higher a state’s TUR, the higher a state’s SUI tax rate is likely to be. The U.S. TUR was 3.9% in December of 2018. Consequently, the economic/employment recovery has caused SUI tax rates to decline in most states. Initial Unemployment Claims. Initial Unemployment Claims have steadily declined since their peak during the Great Recession, a trend that suggests SUI tax rates will also continue to decline, at least until the next recession.
State Trust Fund Solvency. Using an index known as the Average High Cost Multiple (“AHCM”), we can access the solvencies of SUI trust funds. A multiple of 1.00 indicates a trust fund is sufficiently solvent. In good news, the economic/employment recovery has improved the number of states deemed to be sufficiently solvent. However, using the most recent available U.S. DOL annual data, 29 taxing jurisdictions were still deemed to be underfunded. Using an alternative measure of solvency, the average SUI tax rate in 50 jurisdictions was below a calculated Minimum Adequate Financing Rate Target (“MAFRT”). On average as of January 1, 2018, the state average tax rate was 31% below the MAFRT. And when combined with the inadequate solvency level (AHCM), it suggests that the U.S. has an inadequate level of financing currently in place. However, these negative solvency indicators do not appear to be negatively impacting SUI tax rates in the U.S.
On average, SUI tax rates have been declining since 2012. This trend is expected to continue in the near-term, although, perhaps at a slower pace. In fact, the U.S. average SUI tax rates have now fallen below those experienced prior to the Great Recession (2.24% in 2008 versus 2.05% in 2018). Due to trust fund solvency concerns expressed by the U.S. DOL, taxing jurisdictions are likely to react more quickly to indicators of an economic downturn by increasing SUI tax rates at a quicker pace. Equifax assists employers in understanding employer-specific factors and economic indicators impacting their SUI tax rates. SUI Rate Forecasts help employers prepare well in advance for the financial impact of future SUI tax costs. And it allows them to assess their overall Unemployment Cost Management (UCM) program, before unemployment claims begin to escalate. Our team of expert employment tax pros can help you protect your SUI tax rates, even if you aren't a UCM client.
We can prepare a free LookBack tax review for your organization. It can help discover potential overpaid or duplicated employment taxes that might have cost your business thousands of dollars. A typical LookBack goes beyond the surface to understand your unique employee movement activities, uncovering amounts that are owed to you. Plus, we can help ensure you don’t overpay again. It’s easy to sign-up, just click the button below and an expert will be in contact with you soon.
Source: U.S. Department of Labor (“DOL”) unless otherwise noted.
About the Author
Job Title: Managing Director, Employment Tax Consulting
Tom Towson is a Certified Public Accountant. He graduated cum laude from Missouri State University with a Bachelor of Science in accounting and from the University of Missouri — St. Louis with a master’s degree in accounting (emphasis in taxation). He joined Equifax Workforce Solutions in 2011 and specializes in employment tax matters (primarily focused on state unemployment insurance) associated with mergers and acquisitions, tax, strategic planning, and helping develop leading practices.
Before joining Equifax, Mr. Towson served as Chief Financial Officer of a St. Louis-based manufacturing firm, managing all aspects of the company’s financial matters, including income and employment tax functions during his five-year tenure. He spent the prior 16 years with a St. Louis-based public accounting firm where he was the shareholder in charge of taxation services.