What are voluntary unemployment tax contributions, and are they right for my organization?

Taxpaying employers in just over half of the states have an annual option of buying down their tax rates.  This means they are permitted, within a strict time constraint, to contribute an amount in excess of their assigned rate.  This excess tax payment will be applied toward a recalculation of your current year's tax rate assignment.  Buying down your rate obviously makes sense only in those in instances where the contribution needed to reduce the rate is less than the annual projected tax under the original rate assignment.  If you have doubts about whether a voluntary contribution will be advantageous, ask the state agency.  The ever-changing list of states which allow voluntary contributions currently includes the following: Arizona, Arkansas, California, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Texas, Washington, West Virginia and Wisconsin.

Employers paying state unemployment taxes in these states should read their tax rate notices very carefully.  Some states restrict voluntary contributions to specific circumstances.  For example, California does not allow voluntary contributions in those years when tax Schedules E or F apply.  Tax paying employers in the state of Washington are not allowed to make voluntary contributions unless they have experienced a tax increase of at least 6 rate classes.  Employers should be sure their calculations are correct before they elect to make voluntary contributions.  Many states will not return any extra payment amount whether or not it reduces your rate assignment.

Disclaimer:  The information contained in the examples given on this page is general in nature and is not intended as legal advice.  There are no guarantees that a particular state unemployment adjudicator will rule as others have in the cited examples.  Individuals seeking legal advice concerning the handling of similar matters should consult with their attorney, rather than relying upon the information given.

The purpose of this document is to educate clients and potential clients about unemployment compensation. While some effort has been made to address the many differences in laws and procedures in the 53 different jurisdictions (each of the fifty states plus Puerto Rico, Washington D.C. and the Virgin Islands), the primary purpose of this presentation is to review some basic principles shared by many jurisdictions.