Vision Payroll

This week’s question comes from Rob, a business owner. I paid all my federal and state unemployment taxes and didn’t lay anyone off. Why is my unemployment rate going up? Answer: Generally, your state unemployment rate is determined by the ratio of your account balance to your covered employment wages for the measurement period.

For example, if the measurement period runs from October 1 to September 30, your account balance as of September 30 is the numerator and the taxable payroll during the year from October 1 to September 30 is the denominator. The resulting fraction is the reserve percentage or ratio. Some states use longer base periods or use an average over a period of years for the denominator.

The account balance generally increases by contributions the employer has paid into SUTA and decreases by benefit claims paid against the employer’s account and solvency assessments, if necessary. The solvency assessment is used to pay benefit claims that are not charged to an employer.

Taxable wages are generally wages paid to covered employees up to the SUTA limit. They should equal the wages on which SUTA taxes were calculated.

Many states use multiple schedules to determine the employer’s unemployment rate. The reserve percentage or ratio is located on the appropriate schedule and an unemployment tax rate it assigned. The higher the reserve percentage or ratio within the parameters of the schedule, the lower the unemployment rate for the upcoming year. Many states have moved to a schedule with higher overall rates for 2009 since their overall statewide reserve percentage or ratio is lower. Therefore, even employers with lower reserve percentages or ratios can have higher tax rates because of the higher rate schedule.

We recommend you forward Vision Payroll the notice with your 2009 rate as soon as you receive it. Contact Vision Payroll if you have any questions on the determination of your unemployment rate.

This week’s question comes from Denise, a sole proprietor. I just hired my husband to work for me in my business. I’m a sole proprietor. Can I pay my husband through payroll? Answer: If your husband (or wife) is a bona fide employee of you in your trade or business, you can pay him though payroll. He would be subject to all regular taxes except federal unemployment and, in most cases, state unemployment. He should also be eligible for most benefits that any other employee would receive, including health insurance, if he works enough hours. Spouses employed in non trade or business situations, e.g., domestic care of a child, follow different rules for taxation. Contact Vision Payroll for your state’s rules or further information on employing your spouse.

Iowa Workforce Development, the state agency that oversees unemployment insurance announced unchanged rates for 2009. It will be the sixth consecutive year without an increase. Director Elisabeth Buck noted, “The State of Iowa has our commitment to carefully manage the trust fund in the coming year to continue this beneficial trend for Iowa businesses. Iowa has one of the lowest UI tax rates in the nation. Nearly half of our employers have a zero percent rate, and of the remaining employers, over 75% pay less than one percent.” Contact Vision Payroll with any questions on Iowa unemployment insurance rates.

Links to State Unemployment Tax Agencies