The Pending Employment Tax Tsunami

One of the questions that have clients have asked our team recently is “What is going to happen to state and federal unemployment rates after all these unemployment claims have been paid?” That is very good questions as businesses start to look ahead to better times post-COVID pandemic, and honestly, it’s one that bears serious consideration.

While researching this answer there have been several opinions offered from governmental agencies and our PEO Industry advisors. Here are a few observations and opinions that we have compiled that you should be aware of:

Several governmental agencies and PEO Industry representatives agree that, ultimately, it will be employers that pay the tab for the astronomical unemployment claims being paid out during the COVID19 crisis. State unemployment fund reserves (used for paying out unemployment claims) have been decimated. No prior unemployment crisis in our nation’s history has been so adversely impactful on these state claims payment reserves. As a result, increased rates, fees, and charges will certainly be levied against the unemployment tax accounts for all employers in all states across the country. The amount of those charges will likely vary by state based on the number and of claims files and unemployment benefits paid out by each state.

This pending tax tsunami will most likely impact all employers, regardless of whether their companies laid off any employees during the pandemic or not. What is commonly agreed on by most employment tax experts is that in addition to the normal calculations used to determine each employers’ state unemployment tax rate (commonly referred to as either SUTA or SUI) there will be additional charges and calculations implemented. Most likely these fees or calculations will be classified as some sort of “replenishment tax” that will be applied to all unemployment tax accounts (with no businesses escaping this probable charge). Of course, for those businesses that have experienced an extraordinary number of unemployment claims, they will be even more adversely impacted.

Furthermore, we expect the federal unemployment tax rate (referred to as FUTA) to be increased as well. Currently set at .60% of the first $7000 of wages earned by each employee, that rate and possibly the wage cap will most certainly be increased.

The big question that we don’t know yet is… HOW MUCH?

At the LL Roberts Group, we manage the majority (if not all) of the employment tax administration responsibilities and liabilities for our clients. As these processes likely become even more complex, we have the experience and knowledgeable staff needed to properly manage these employer obligations while minimizing the related costs.

If you have any questions regarding how a PEO can assist with tax compliance for your company, please contact The LL Roberts Group toll free at 877.878.6463 or you can talk to us on Facebook or Twitter!

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