2015-12-02 00:00:00TaxesEnglishYour business should've received a letter from the unemployment office by December that outlines your tax rate. Here's what you need to...https://quickbooks.intuit.com/r/us_qrc/uploads/2015/12/2015_11_30-small-am-does-the-ui-office-owe-you-money-check-with-your-accountant.jpghttps://quickbooks.intuit.com/r/taxes/what-december-1-means-for-your-unemployment-insurance-tax-rate/What December 1 Means for Your Unemployment Insurance Tax Rate

What December 1 Means for Your Unemployment Insurance Tax Rate

3 min read

Some people may dread the holiday season because of all the gifts they need to purchase. However, employers have a very important reason to dread the month of December as well.

It’s that time of year again: Time to find out your newly adjusted state unemployment insurance tax rate. Each year, your unemployment insurance tax rate is re-calculated, and a rate determination letter is mailed to you by December 1.

In most states, you only have 15 days to file a protest if the rate is incorrect. Otherwise, you’re stuck paying the wrong rate for an entire year. An incorrect rate can cost you thousands of dollars, and small businesses can’t afford that hit to their bottom line. So how do you know if it’s correct? And what can you do if it’s wrong?

The number of people employed by your company and the number of employees you have lost in the past three years help determine your unemployment insurance tax rate. Wages paid to employees and their length of employment are also factored into the calculations. Each state has a range of possible rates that can be given to employers, and each state’s range is unique. The amount you pay is calculated by multiplying your tax rate by the wage base in your state.

Here are some examples of unemployment insurance tax rates from a few states:

  • In Florida, you can be charged between $17 and $378 per employee for the year.
  • California charges between $105 and $434 per employee annually.
  • The rate for Illinois ranges between $71 and $1,056 per employee per year.
  • Texas charges between $42 and $774 per employee per year.
  • Colorado charges between $251 and $1,140 per employee per year.

Based on these examples, you can see that the range of unemployment insurance tax rates can be significant for your finances. If you have a company in Colorado with a staff of ten employees, the costs of unemployment taxes for the year can range from $2,510 to $11,400. And in some cases, that extra $8,890 can make or break a small business. This is why the rate determination letter can’t be ignored.

Make it a priority to check that your statement is mailed to you by December 1. If you do not normally deal with your finances, this should spur a visit or a phone call with your accountant.

There’s good news for new businesses that are less than three years old. If you have not had any unemployment claims during the year, you will not see a change in your unemployment insurance rate. All new business have a “new employer rate” they are assigned for the first three years of operations. The rate will not go down, but if you’ve had a claim, your tax rate will increase.

For businesses that are older than three years, your rate will be adjusted based on your company’s history of claims. If you’ve had no claims this year, your rate should go down. If you’ve had claims, it will most certainly go up.

To ensure that you win against any fraudulent unemployment claims, it’s very important to have documentation for every employee from his or her first day on the job to the last. Only proper documentation, quick action on unemployment insurance notices and careful review of unemployment insurance tax rates will keep you and your finances safe.

What Should I Do If I Don’t Receive the Letter?

If you don’t receive the letter by December, contact your local unemployment office and request a duplicate copy. You can also ask the postmaster to search for the letter; it may have gotten lost in the mail. It’s up to you to contact your state to ask for another copy so you can check the new rate. The unemployment office will not accept excuses for not requesting a correction within the allocated time.

Don’t forget to check the mail or call your accountant today! And to prevent any unwarranted increases in your unemployment insurance tax rate, be sure to check out my article on what to do when an employee walks off the job.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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