APA Payroll Conference Be a Payroll Champion Mitigating Overpayment of Employment Taxes 2 Presenters Scott Bankert Regional Manager Employment Tax Consulting 3146842075 scottbankertequifaxcom ID: 789419
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Slide1
24th Annual Illinois Statewide APA Payroll Conference“Be a Payroll Champion”
Mitigating Overpayment of Employment Taxes
Slide22Presenters
Scott Bankert
Regional Manager
Employment Tax Consulting
314-684-2075
scott.bankert@equifax.com
Slide33Notice/Disclaimer The information provided herein is intended as general guidance and is not intended to convey specific tax or legal advice.
This webinar is intended for the benefit of our customers and potential customers.
This webinar cannot be shared with third parties.
Slide44AgendaGeneral Overview
Common Causes of Overpaid Employment Taxes:
State Unemployment
Insurance (SUI) Rate
Revisions
Mid-Year Wage Base CarryoverMulti-State SUI Sourcing Out-of-State SUI Wage CreditsCredits on AccountOther OpportunitiesSummaryQuestions and Answers
Slide5Employment Tax Types5
Tax Rate:
2016/2017 - 6.2%
Wage Base:
2016 – $118,500
2017 - $127,200Max Tax Cost:2016 – $7,3472017 – $7,886Tax Rate:2016 – 2.51%(2)Wage Base:2016 – $17,800(3)2017 – $18,085(3)Est. Avg. Tax Cost:2016 – $447Tax Rate:2016/2017 - 0.6%(1)Wage Base:2016 – $7,0002017 – $7,000Max Tax Cost:
2016 – $422017 – $42
Rate does not take into consideration the impact of FUTA credit reductions (CA and VI
had a
net FUTA rate of 2.4% for 2016).
Total
SUI tax revenues for all taxing jurisdictions divided by total SUI taxable payroll, per the U.S.
DOL. 2017 has not been released yet.
S
imple average of all taxing jurisdictions for 2016 and estimated simple average for 2017.
State
Unemployment Insurance
(SUI)
Federal Unemployment Insurance
(FUTA)
Social
Security
Insurance
(FICA)
Slide66The costs of unemployment remain escalated despite an improved economic environment
$5,259
Average benefit paid per
unemployment claim
(3Q 2016)
110.26%National Annual Benefit ChargeOverpayment Rate(2015)5$3,104,032,870Title XII Loans Outstanding(3/21/2017)415.5Average Weeks APerson Draws Unemployment (3Q 2016) 12States Facing FUTA Tax Increases in 2017(as of 3/21/2017)4
4.7%National Total
Unemployment Rate
(February 2017)
3
Source:
As
of
1/7/2017
1. U.S. DOL Data Summary
2. Simple average of SUI wage bases*U.S. DOL Average Tax Rate
3. Bureau of Labor Statistics Monthly Current Population Survey
4.
Treasury Direct Title
XII Advance Activities
Schedule
5. U.S. DOL Benefit Accuracy Measurement
Report
$
39,632,905
Title XII Loan Interest – 2017
(accrued as of 3/21/2017)
4
$446
Average Tax
C
ost Per Employee
(
2016)
2
35
Underfunded
state trust funds
(10/1/2016)
1
129%
Amount of each benefit paid that employers must contribute to their state trust fund
(3Q 2016)
1
Slide77SUI Tax Rates in 2017 and Beyond – U.S.
Source: Average SUI Tax Rate (%) per U.S. Department of
Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.
Slide88SUI Tax Rates in 2017 and Beyond – U.S.
Source: Average SUI Tax Rate (%) per U.S. Department of
Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.
Approx
.
2.5% increase per year
Slide99SUI Tax Rates in 2017 and Beyond – U.S.
Source: Average SUI Tax Rate (%) per U.S. Department of
Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.
$13,268
$17,782
Slide1010SUI Tax Rates in 2017 and Beyond – U.S.
Source: Average SUI Tax Rate (%) per U.S. Department of
Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.
Slide1111Historical Average Tax Cost Per Employee
Total Includes: FUTA: $7,000 x 0.6% = $42 per employee.
FICA: National Wage Index x 6.2% = Cost per employee.
SUI: Average tax cost per employee. Tax cost does not take into consideration FUTA credit reductions associated with outstanding Title XII loans.
Slide12State Unemployment InsuranceRate Revisions12
Slide1313Some Reasons for SUI Rate Revisions
State errors in rate calculations
Legislative changes
Amendments to taxable wages
Historical benefit charge adjustments
Statutory electionsVoluntary ContributionsJoint AccountsOther Rating StrategiesTransfers of experience (“TOE”)
Slide1414Statutory Elections Map
VC (
18
Jurisdictions)
JA (5 Jurisdictions)
Both VC and JA (5 Jurisdictions)
Not
applicable
(
22
Jurisdictions)
VC, JA, and PVE (1 Jurisdiction)
VC and NWO (1 Jurisdiction)
VC, JA, and NWO (1 Jurisdiction)
CT
DC
DE
MA
MD
NH
NJ
PR
RI
VI
VT
Jurisdictions include 50 U.S. States, DC, PR, and VI
Joint Accounts (JA), Voluntary Contributions (VC),
Negative Write-Offs (NWO), and Payroll Variations Elections (PVE)
AK
WA
OR
CA
NV
AZ
NM
TX
OK
AR
LA
FL
GA
AL
MS
ID
MT
WY
UT
CO
ND
SD
NE
KS
MN
WI
MI
IA
MO
IL
IN
OH
PA
NC
SC
KY
TN
WV
VA
ME
HI
NY
Slide1515Transfers of Experience (“TOE”)
Employers undergoing mergers, acquisitions, reorganizations, and divestitures may have the option or be required to transfer the experience between predecessor and successor:
Transfer
:
Movement of business operations (including employment), or portion thereof, from one legal entity to another, by any means; can involve asset-only or employee-only conveyances.
Experience: History of changes in the factors used in the development of a UI tax rate over a specified period, including benefit charges, taxable payroll, and taxes paid.The TOE can positively OR negatively impact rates.The effective date of the rate revision can vary. States can sometimes take years to process a transfer.
Slide16Rate Revision Example 1Employer A is merging with and into Employer B.The transaction is effective 1/1/2016.The TOE is effective 1/1/2016 and is mandatory.
Employer
B
5.00%
Employer
A3.00%BeforeAfterEmployer AIs DissolvedEmployer BIncluding Former Employer AParent CoParent Co16
Slide1717Rate Revision Example 1
The expected revised rate is 4.0%, effective 01/01/2016.The merged entity should pay at the assigned rate of 5.0% while booking a receivable for the expected revised rate.Upon issuance of the revised rate, the merged entity can apply the overpayment toward future tax contributions due or request a refund.
Rate Assignment
Taxable Payroll
2016
RateCostOriginal Rate for Employer B$70,000,000 5.00%$ 3,500,000 Revised Rate for Employer B 70,000,000 4.00% 2,800,000
O
verpayment
$ 700,000
Slide18Rate Revision Example 2Employer A purchases assets and workforce of Employer B effective 1/1/2016.Employer A creates NewCo and transfers all employees from Employer B to
NewCo. The transaction is NOT reported to state.NewCo
rate is 2.70% while Employer B has a rate of 1.0%.
Employer
B
1.00%Employer ABefore18AfterNewCo2.70%Employer A
Slide1919Rate Revision Example 2
NewCo should request a TOE from Employer B resulting in a revised rate of 1.0%.If NewCo
and/or Employer B fail to report the transaction, and the state does not mandate the TOE,
NewCo
will
significantly overpay SUI tax for 2016 and future years.CompanyTaxable Payroll2016RateCostNewCo at New Employer Rate$30,000,000 2.70%$ 810,000 NewCo at Transferred Rate 30,000,000 1.00% 300,000
Overpayment
$ 510,000
Slide20Mid-Year Wage Base Carryovers20
Slide21Wage Base Carryovers – Federal Wages paid by the predecessor can be used by a successor for purposes of the annual wage limitation (FICA and FUTA), if:
The successor acquired property
used in a trade or
business,
or
a separate unit of a trade or business, of the predecessor; Predecessor employees were employed by the successor immediately after the acquisition; andThe wages were paid during the calendar year in which the acquisition occurred and prior to the acquisition.1“Use of assets” doctrine.2211 IRC §§3121(a)(1) and 3306(b)(1) and Treas. Reg. §§31.3131(a)(1)-1(b)(2) and 31.3306(b)(1)-1(b)(2).2 Revenue Rulings 68-105 and 72-269.
Slide22Wage Base Carryovers – StateWages paid by the predecessor can typically be used by a successor for purposes of the annual wage
limitation, if:A transfer of a trade or business, or a portion thereof, occurred; and
Proper
compliance documents have been filed and
acknowledged
by the state workforce agencies.1Improper reporting of the transaction may cost the employer the ability to carryover wages for purposes of the annual SUI taxable wage base limits.221 Pursuant to P.L. 108-295, the SUTA Dumping Prevention Act of 2004 and related unemployment tax provision of each taxing jurisdictions. Each jurisdiction’s transfer of experience and wage base carryover provisions should be reviewed to ensure ability to carryover the annual taxable wage base.
Slide2323Mid-Year Wage Base Carryover ExampleEmployer A is merging with and into Employer B.The transaction is effective 7/1/2016.
Of the 1,000 employees transferred, 900 employees make $50,000 per year and 100 make $150,000 per year.
Employer
B
Employer
ABeforeAfterEmployer Ais DissolvedEmployer BIncluding Former Employer AParent CoParent Co
Slide2424Mid-Year Wage Base Carryover Example
There is generally a 3 year statute of limitations to recover overpaid employment taxes.
Of
the 1,000 employees transferred, 900
employees make
$50,000 per year and 100 make $150,000 per year.TypeofTaxTaxableWageBaseTotalGrossWages(Predecessor)TaxableWages(Predecessor)TotalGrossWages(Successor)TaxableWages(Successor)TotalTaxableWagesTotal
TaxableWageBase
Limits
Overpaid
Taxable
Wages
# of
EEs
Total
Overpaid
Taxable
Wages
Tax
Rate
Potential
Overpayment
FUTA
$7,000
$25,000
$7,000
$25,000
$7,000
$14,000
$7,000
$7,000
900
$6,300,000
0.60%
$37,800
FUTA
7,000
75,000
7,000
75,000
7,000
14,000
7,000
7,000
100
700,000
0.60%
4,200
FICA
118,500
25,000
25,000
25,000
25,000
50,000
50,000
0
900
0
6.20%
0
FICA
118,500
75,000
75,000
75,000
75,000
150,000
118,500
31,500
100
3,150,000
6.20%
195,300
SUI
18,000
25,000
18,000
25,000
18,000
36,000
18,000
18,000
900
16,200,000
4.00%
648,000
SUI
18,000
75,000
18,000
75,000
18,000
36,000
18,000
18,000
100
1,800,000
4.00%
72,000
Overpayment
$957,300
Slide25Multi-StateSUI Sourcing25
Slide2626SUI SourcingIn order to avoid duplicate taxation or coverage when an employee works for one employer in more than one state, the U.S. DOL mandated the incorporation of "localization of work" (a/k/a “SUI sourcing”) provisions into each state’s UI law.
All states have adopted a uniform set of statutory factors to determine where SUI wages should be
sourced (i.e., reported).
These “four
factors”
1 are applied in the order of priority presented below:Localization of ServicesBase of OperationsPlace of Direction and Control Residence1 Pursuant to U.S. DOL Unemployment Insurance Program Letter (UIPL) 20-04, including Attachment 1, and related state unemployment insurance tax provisions. Note: If the above four factors do not apply: a) Follow the laws of the states in which services are performed [perhaps under a provision for election of coverage]; or b) Participate in interstate reciprocal coverage agreements that allow employers to effectively choose the state of coverage.
Slide2727Four-Factor Test
Localization of
Services:
Localization
refers to the state in which a majority of services are performed
.Base of Operations: The state in which the employee maintains a base of operations and performs some service.
Slide2828Four-Factor Test
Place of Direction and Control: The state from which the employee receives direction and control and performs some service
.
Residence:
The
employee’s state of residency and performs some service.
Slide2929SUI Sourcing Example 1
John Doe is a district manager responsible for territories in Alabama, Florida, Georgia, and South Carolina.John maintains an office at his employer’s headquarters in Florida
and does not have an office in any other state.
John’s employer reports his wages for SUI tax purposes to all four states
.
Slide3030SUI Sourcing Example 1
As
Reported
:
State
Gross WagesTaxable Wage BaseTaxable WagesTax RateTax CostAL$ 20,000 $ 8,000
$ 8,000
4.50%
$ 360
FL
3
0,000
7,000
7,000
5.00%
350
GA
10,000
9,500
9,500
4.00%
380
SC
10,000
14,000
10,000
3.50%
350
$ 70,000
$ 1,440
As
Reported Using SUI Sourcing Rules:
State
Gross Wages
Taxable Wage Base
Taxable Wages
Tax Rate
Tax Cost
FL
$ 70,000
$ 7,000
$ 7,000
5.00%
$ 350
Overpayment
$ 1,090
Slide3131
SUI Sourcing Example
2
Jan Doe is a sales manager responsible for
territories in Alabama
, Florida, Georgia, and South Carolina. Jan has access to regional offices in each state.Jan receives direction and control from Florida and South Carolina.Jan’s home is located in Alabama.Jan’s employer reports her wages for SUI tax purposes to all four states.
Slide3232SUI Sourcing Example 2
As Reported
:
StateGross WagesTaxable Wage BaseTaxable WagesTax RateTax CostAL$ 20,000 $ 8,000
$ 8,000
6.00%
$ 480
FL
2
0,000
7,000
7,000
2.00%
140
GA
2
0,000
9,500
9,500
6.00%
523
SC
20,000
14,000
14,000
4.00%
560
$ 80,000
$ 1,703
As Reported Using SUI Sourcing Rules:
State
Gross Wages
Taxable Wage Base
Taxable Wages
Tax Rate
Tax Cost
AL
$ 80,000
$ 8,000
$ 8,000
6.00%
$ 480
Overpayment
$ 1,223
Slide33Out-of-State SUIWage Credits33
Slide34Out-of-State SUI Wage CreditsEmployers often have a need to transfer or relocate employees from one taxing jurisdiction to another (e.g., a state-to-state transfer).
Many states allow employers to take credit for taxable wages paid to another state (except Louisiana
, Minnesota, and
Montana).
Requirements include:
Permanent change in the SUI sourcing state.Transfer within the same legal entity.Many states allow refund claims three to five years after the initial filing and payment of tax. 34
Slide35OOS Wage Credit Common TriggersHeadquarter moveConsolidation of locationsPost M&A integrationExpansion/Growth New factoryNew office facility
Employee movementsPromotionsRelocationsOther job changes
Telecommuting (
work-from-home)
Implementation of policy
Revocation of policy35
Slide36Out-of-State SUI Wage Credit ExampleEffective 7/1/2016, 1,000 employees were relocated from the old headquarters in Florida to a new headquarters in New York.
Tax Cost (Without
Using OOS
Wage Credits
):
OriginalStateWageBaseNewStateWageBaseCredit FromPriorState
Wage Base
Remaining
Tax
Rate
Tax Cost
# of
Employees
Total
Tax Cost
FL
$7,000
NY
$10,700
$ 0
$10,700
5.00%
$535
1,000
$535,000
Tax Cost (Using OOS Wage Credits):
Original
State
Wage
Base
New
State
Wage
Base
Credit From
Prior
State
Wage Base
Remaining
Tax
Rate
Tax Cost
# of
Employees
Total
Tax Cost
FL
$7,000
NY
$10,700
$7,000
$3,700
5.00%
$185
1,000
$185,000
Overpayment
$350,000
36
Slide37Credits on Account37
Slide3838Credits on Account – Why They Might Occur
Rate RevisionTransfer of Experience
Retroactive rate revisions
Improper Rate entry into
system
Clerical errorsDelays in proper rate receiptPayment made to incorrect accountOverpayment of non-SUI taxes (such as income tax withholding and disability insurance)
Slide3939Credits on Account – Ways to Identify
Call the state workforce agencies (power of attorney may be verified).
Verify
employer account
standing on state workforce agency websites (user name and password will be needed).
Review documents from state (rate notices, blank QCRs, etc.) and third party vendors for notices of credits or opportunity to apply for credits.
Slide4040Credits on Account – Ways to Recover
Identify state refund method for overpayments.
Notify
your payroll tax group or t
hird-party
payroll tax filer to apply the credit to current or future tax liabilities.Send a letter requesting a refund.Fill out state-specific application for refund.
Slide41Other Opportunities41
Slide4242Michigan Unemployment Tax Credit
Michigan offered a tax credit for 2009, 2010, and 2011 to offset the FUTA tax increases of 0.3% in 2009, 0.6% in 2010, and 0.9% in 2011.
2009: Maximum $21 per employee
2010:
Maximum
$42 per employee2011: Maximum $63 per employeeGenerally, the amount of the credit is 50% of the additional FUTA tax paid by the employer.Employers with a positive account balance in operation for five or more years prior to the credit year, subject to additional requirements, can receive the tax credit.
Slide43Summary43
Slide4444Summary
Three Main Employment Taxes – FICA, FUTA, and SUI
Rate Revisions – Pay at assigned rate, accrue at revised rate
Mid-Year Wage Base Carryover – Most transactions qualify
Meet Compliance Requirements for SUI
Must File for a RefundMulti-State SUI Sourcing – Report employees to proper stateOut-of-State SUI Wage Credits – Take advantage of creditsCredits on Account – Identify, review, and recoverStatute of Limitations – Typically three years (some are five/six) Stay Informed – http://insight.equifax.com
Slide4545Questions and Answers
For more information about Equifax Unemployment Cost Management services:
Send an e-mail to
workforce@equifax.com
Visit
http://insight.equifax.com