Many Washington employers will see changes in the amount of unemployment tax they will pay next year as a result of 2003 legislation now taking effect.
The Washington State Employment Security Department began mailing 2005 tax rate notices to employers this week. The first tax payments using the new rates are due Apr. 30, 2005.
Unemployment taxes will shrink an average of 1.35 percent, and tax payments per employee will decrease more than 3 percent from an average of $600 in 2004 to an average of $578 in 2005. However, the amounts vary widely among individual employers based on several criteria including how often they lay off workers.
“Employers are now seeing the result of the most substantial change in unemployment tax laws in Washington history,” said Employment Security Commissioner Sylvia P. Mundy. “The overhaul of the states unemployment system resulted in numerous changes to tax calculations and benefit payments. Some employers will pay lower taxes in 2005, but others will see their taxes increase.”
NEW CALCULATION RATES FOR TAXES
Effective Jan. 1, 2005, tax rate contributions will be calculated based on a single tax rate schedule based on an employers history of laying off or retaining workers.
The new schedule will range from 0 percent to 5.4 percent of taxable wages for established businesses. It replaces the previous system that used seven schedules.
Forty rate classes will be in effect double the number now used. More rate classes will result in fewer employers within each individual rate class. This means fairer tax rates for each employer. The fixed rates also make it easier for employers to budget future unemployment insurance costs.
Each rate will have a social cost added, which is designed to recoup payments from the unemployment trust fund that are not charged to a specific employer. Employers will also continue to pay an additional tax denoted as the Employment Administration Fund that pays for special work search assistance and training for the unemployed.
When all these rates are combined, employers will pay taxes between 0.83 percent to 6.52 percent of taxable wages in 2005.
The amount of worker wages that are taxed will also increase under state law. Employers will pay unemployment taxes on the first $30,500 of a workers wages in 2005, up from $30,200 this year.
There will be no solvency surcharge in 2005; this cost is designed to keep the unemployment trust fund solvent during recessions. It is not necessary given the Sept. 30 unemployment trust fund balance of $1.34 billion.
NEW TAX RATE RULES FOR EMPLOYERS WHO TAKE OVER AN EXISTING BUSINESS
The law also establishes new tax rules for employers who take over existing businesses. These businesses are typically referred to as “successors” in unemployment regulations, and include businesses that buy or otherwise acquire a portion or all of another employers operating assets or trade.
Effective Jan. 1, 2005, successors who are not established employers at the time of transfer will pay the same tax rate currently assigned to the previous owner. Starting in 2006, the tax rate will be calculated using a combination of the successors own worker retention history and that transferred from the previous owner. These changes are designed to appropriately distribute unemployment benefit costs to employers responsible for the unemployment.
NEW TAX RATE RULES FOR NEW BUSINESSES
New employers do not have an established history of worker retention by which to gauge their companys potential impact on the unemployment trust fund. As such, their tax rates are determined by their particular industry.
Starting in 2005, new employers will be assigned a calculation rate equal to the average tax rate within their industry plus an additional 15 percent of that rate.
VOLUNTARY CONTRIBUTION PROGRAM MAY HELP BUSINESSES LOWER RATES
Employment Security offers Washington businesses a voluntary contribution program that may help them control their unemployment insurance by buying down to a lower tax rate.
The program is best suited to employers whose unemployment taxes spiked suddenly as a result of many former workers filing for unemployment benefits and who are now increasing their workforce. To be eligible, the employers tax rate level must have increased by 12 rate classes in the past year.
Employers pay a voluntary fee based on the amount the state paid in unemployment benefits to their workers over the past two fiscal years plus a surcharge. Employers must pay an amount equivalent to dropping four or more tax rate classes. By doing so, the employer will owe fewer taxes in 2005.
In addition, the employer will retain the lowered benefit charge amount for calculation of their taxes for the following three years. The tax rate should remain low provided there are few or no additional layoffs.
Businesses eligible for the voluntary contribution program will be mailed applications in January. Interested employers must return the application with the payment by Feb. 15, 2005.
These changes are a result of Second Engrossed Senate Bill 6097. The calculation of the tax schedule is set by state law in RCW 50.29.025.
For additional information about unemployment tax laws and online filing, see Employment Securitys Web site at http://www.wa.gov/esd.
