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In November, we released information about 21 states that missed the deadline to pay back outstanding loans they had borrowed from the federal government to cover unemployment benefits, resulting in a FUTA credit reduction, or in other words, higher taxes for employers in these states.

Although at the time the news only rippled in small shock waves, now that these bills are finally hitting the doorsteps of businesses across these states, employers are looking for answers. In Rhode Island, an article hit the news today about how employers are beginning to feel the effects, and why even the small changes in costs are bad for business. As one business owner, Bill Kitsilis, whose family owns Angelo’s Palace Pizza in Cumberland, stated in the GoLocalProv.com article: “Doing business in Rhode Island—it’s like being killed by a thousand cuts. It’s all these little extra costs of doing business that kill you in the long run.”

Rhode Island is just one of the many states that suffered from the same issue that ultimately lead to the borrowing, and now the higher taxes – the one small stone that has taken down these many state Goliaths – failure to keep up with the times. With a taxable wage base of just $7,000, the federal minimum for all states, the state has refused to raise unemployment taxes on employers for more than a decade. It was only a matter of time before an economic crisis plunged them into an unemployment funding deficit.

One proposed federal bill would finally raise the federal taxable wage base minimum for all states from $7,000 to $15,000 in 2014. States that have indexed their taxable wages over the years are likely at an appropriate level now and would remain unaffected. But thirty-four states (yes, 34) could potentially have to increase their taxable wage base up to $15,000, ultimately increasing taxes for employers in each of those states.

The responsibility lies in everyone’s hands now, though. States that have avoided the necessary tax increases will have to face the facts. And employers will have to get more savvy about their unemployment practices. Simple actions like documenting voluntary quits and performance-related discharges will help the states pay only legitimate unemployment claims, keeping their funding for the right candidates and keeping employers from seeing higher tax rates. Nonprofits with 501(c)(3) tax-exempt status should look into opting out of the unemployment tax system and find out whether it would be more cost-effective to just reimburse the state for their own former employees’ unemployment benefits (which is allowed by federal law in all states). The unemployment crisis wasn’t created in a day and it won’t be fixed in a day either. But with more attention on the issue, employers and states alike can see some light at the end of the tunnel.

If you are a 501(c)(3) not-for-profit organization, click here to find out if opting out of the state unemployment tax system could save you money.

The USDOL Department of Labor announced on February 13th that the interest rate to be charged by the US Treasury on advances to state UI trust funds to pay state UI benefits in 2012 will be reduced to 2.9430%. This is down from the 2011 rate which exceeded 4.0%. The federal funds rate fluctuates each year and is based on the earnings yield on the unemployment trust fund the quarter ending December 31st of the previous calendar year. The USDOL announcement is available here.

Employers and states should be aware of this change in interest rate in budgeting for and planning for the payment of interest that is generally due by September 30, 2012. Tight management of the repayment of state UI loans can minimize the amount of interest to be paid in 2012 and may enable a state to benefit from the cash flow interest free provisions of federal law. See federal regulations at 20 CFR Part 606 for details.

SUMMARY: Unemployment Services Trust helps 501(c)(3) agencies reduce unemployment costs as state taxes increase across the United States, adding nearly 70 new members in 2011.

February 9, 2012, Santa Barbara, CA — Many nonprofit organizations find it difficult to make ends meet during recessionary periods not only because of cutbacks in government grants, but donors tend to be tight-pocketed in supporting programs – and even more so when it comes to helping with operating expenses. These days, organizations are researching every possible way to cut costs, so it’s no wonder why the Unemployment Services Trust (UST) added 70 new members in 2011, representing about 6,815 employees.

Nonprofit organizations holding 501(c)(3) status have the distinct opportunity to opt out of their respective state unemployment tax system and instead reimburse the state dollar-for-dollar when an unemployment claim is filed by a former employee. Even though this law was enacted in 1972, it still comes as a relief for many nonprofits that were unaware of the potential savings that the law presents. Businesses that pay into the state tax system typically pay in $2.00 for every $1.00 paid out in benefits in order to cover administrative fees incurred by the state, as well as subsidize other employers with high turnover rates.

For 2011, it was projected that State Unemployment Insurance (SUI) taxes would increase by an average of 16% across the United States. Increased demands for services from nonprofits across the nation, teamed with increased taxes and cuts to many government grants has left organizations scrambling to explore every option available to reduce expenses.

The Unemployment Services Trust offers one way to help curb the growing cost of unemployment for nonprofits. It helps organizations with 10 or more employees to opt out of the state unemployment tax system, and then set up a savings account into which the organization makes quarterly deposits. The organization owns and holds it as a working asset on their books.

When the organization experiences a layoff, the trust will pay the state out of the agency’s savings account, which will later be replenished through future quarterly deposits. If an agency’s claims are more than their account balance, the trust will still pay the claims and give them a year to cushion the expense and rebuild their account. On the flip side, if an agency has more in their account than is deemed necessary after a few years, they can receive a refund on a portion of their balance. The quarterly rate given to the organization is determined by an actuary, and is typically much less than the state unemployment tax rate, helping nonprofits preserve funds that can be allocated according to the organization’s mission.

UST was founded by nonprofits for nonprofits and remains the largest of all national unemployment trusts. Consisting of more than 2,000 member organizations across the country, UST has been helping nonprofits reduce expenses since 1983. Its long-standing relationship with nonprofit organizations provides an average of more than $35 million in claims savings annually and has provided more than $33 million in refunds to trust members. For more information about the organization, visit www.ChooseUST.org or call (888) 249-4788.