The New York State Department of Labor Unemployment Insurance Division is one of the last states to mail annual tax rate notices out to employers with operations in its state. The agency’s mailing towards the end of February each year can make it difficult for employers to update their payroll service providers and ensure accurate payment of taxes at the end of the first quarter. However, this state provides some of the more lucrative opportunities for employers to reduce their unemployment tax costs. Employers in New York can take advantage of one or several options to reduce costs.

A voluntary contribution, sometimes known as a VC, provides employers a one-year option to reduce their unemployment tax rate. By pre-paying taxes up to a certain amount, the ratio of the employer’s account balance to its taxable payroll can change just enough to lower the tax rate one bracket. Of course, the voluntary payment must be less than the expected savings to be profitable, but it is an evaluation that is worthwhile to undertake and can be done annually.

The term “joint account” is used to define the combination of tax rate experience between entities to obtain a lower tax rate for all entities included. The effect on the tax rate is similar to what occurs during a legal merger but without the legalities and costs of merging. Employers can and should calculate the opportunity for combining two or more entities’ rate experience to determine if there is an overall tax reduction. This comes with a word of caution, however, because the required duration for a joint account in the state of New York is three years. Estimates on future years should be completed with an eye to conservativism. The voluntary contribution option mentioned previously can also be evaluated along with a joint account option.

Another option in New York is what is referred to as a negative balance write off. When benefit charges to an employer’s account exceed the total contributions or taxes paid, the employer has a negative account balance. If on the computation date, an employer’s negative account balance exceeds 21% of the taxable payroll for the preceding payroll year, the employer will be assigned the maximum tax rate for the next three years. Employers may avoid having part of their accounts transferred and assessed higher rates by making voluntary payments. In some cases, the tax cost is less to receive the maximum tax rate for three years. In other cases, it is more cost-effective to make the voluntary payment and not be burdened with the maximum tax rate for subsequent years. Again, it is critical this evaluation is completed to ensure the lowest tax rate is obtained.

Finally, if an employer with a minimum of 17 quarters of liability has a negative account balance and the total wages paid by the employer for the preceding payroll year is greater than or equal to 80% of the average payroll, such employer’s account percentage for the subsequent year will be improved by four percentage points. The caveat is the employer’s resulting rate can be no less than 6.10%.

Unemployment tax rates can be difficult to verify for accuracy, but each year, steps should be taken to make certain they are correct, and opportunities for rate reduction should be analyzed. The Tax Analysts at Corporate Cost Control have decades of experience in assisting clients with this cumbersome task. Make sure you send any tax rate notices received to your assigned Tax Analyst or the Director of Tax, Wayne Rottger, at wrottger@corporatecostcontrol.com.


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