The Pennsylvania Office of Unemployment Compensation Tax Services mails annual tax rate notices out to employers doing business in its state at the end of December each year. You should have received yours for 2020 very recently. If you have, you may have noticed a significant decrease in your tax rate compared to the prior year.

One reason for this is the decrease of one of the components that make up the tax rate. The Interest Factor was 1.10% in 201,9 but in 2020, it is reduced to 0.00%. During the most recent recession, Pennsylvania’s unemployment trust fund became insolven,t which resulted in the need to borrow from the federal government through a Title XII Loan. In 2012, Pennsylvania passed a law authorizing the Commonwealth to refinance debt through the issuance of bonds in the private market instead. This is accomplished by what is called the Interest Factor. If this decrease alone isn’t enough to improve your outlook for 2020, there are other opportunities employers have in Pennsylvania to reduce unemployment tax costs.

Like some of its counterparts, Pennsylvania offers employers who do business in its state to make a voluntary contribution, sometimes known as a VC, to lower its tax rate for the coming year. The voluntary contribution is a pre-payment at the beginning of the calendar year to change the ratio between the account balance and the taxable payroll resulting in a reduced tax rate. As the title suggests, it is voluntary and can be calculated and paid annually. If the voluntary contribution amount is less than the overall tax that would otherwise be paid, it may make good fiscal sense for your organization.

Another opportunity for tax reduction is through a negative account balance write off. A higher tax rate is assigned to employers whose reserve account becomes negative when it is paying less in unemployment taxes than what is being paid out to claimants in unemployment benefits. If the benefits paid out exceed the amount of contributions paid into it by an amount which is more than 20% of the employer’s annual payroll, the employer may elect to have its reserve account adjusted to a negative balance equal to 20% of its average annual payroll. If elected, the employer’s tax rate will increase to the maximum rate for the next three calendar years.

Careful review and analysis of unemployment tax rates each year is beneficial in maintaining the lowest tax rates available. Also, calculating opportunities for voluntary buy downs or negative account balance write offs are essential to making certain all available tax reductions are realized. Your Corporate Cost Control Tax Analyst is skilled in auditing tax rates for accuracy and forecasting other opportunities for tax reduction. It is imperative to send any tax rate notices received from the various jurisdictions to your assigned Tax Analyst or to the Director of Tax, Wayne Rottger at wrottger@corporatecostcontrol.com. Together, our partnership will ensure you have control over all of the factors which make up your tax rates.


Contact CCC to see how we can save your organization time and money.
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