Employment Tax Management Economic Update & Impact on Employers American Payroll Association Greater Milwaukee Chapter April 15, 2009 Scott Bankert & Sally Rose TALX Corporation
AGENDA I. Economic Environment II. Title XII Review III. Tax Planning Discussion IV. Tax Credit and Incentive Review V. Conclusions 2
Unemployment Compensation (UC) Program Introduction and Background Federal-state UC Program created by Social Security Act (SSA) of 1935 Employers pay two forms of UC taxes required by law Federal Unemployment Tax Act (FUTA) tax State Unemployment Tax (SUTA) Department of Labor (USDOL) oversees Conformity and compliance with Federal Law Sets broad policies for program administration Monitors state performance Distributes administrative funds to states Source: U.S. DOL Evaluation of State Implementation of section 303(k), SSA Chapter 1 3
Federal and State UC Tax FUTA tax is a flat tax collected by the IRS to fund: Federal Administration Oversight of UC Program Administration of State UC and Job Service Programs Pays Federal share of extended benefits Builds reserves to loan states when trust fund balances depleted SUTA tax is based on experience rated system Used to pay benefits to unemployed workers Source: U.S. DOL Evaluation of State Implementation of section 303(k), SSA Chapter 1 4
Unemployment Taxes State Trust Fund State Accounts Deposits Build Reserves Employer Taxes = 5
Unemployment Taxes State Trust Fund State Accounts Voluntary Quits Discharges Lack of Work Employer Taxes Administrative Errors 8% Benefit Payments 6
UI Trust Funds (Balances, Revenue & Benefits) (Source: US Department of Labor http://workforcesecurity.doleta.gov/unemploy/content/data.asp) $60,000,000 3.00% $50,000,000 2.50% $40,000,000 $30,000,000 $20,000,000 $10,000,000 2.00% 1.50% 1.00% 0.50% Revenue TF Balance Benefits Avg. Rate All Values in $000 Revenue is Average of Past 4 Quarters $0 1998.4 1999.1 1999.2 1999.3 1999.4 2000.1 2000.2 2000.3 2000.4 2001.1 2001.2 2001.3 2001.4 2002.1 2002.2 2002.3 2002.4 2003.1 2003.2 2003.3 2003.4 2004.1 2004.2 2004.3 2004.4 2005.1 2005.2 2005.3 2005.4 2006.1 2006.2 2006.3 2006.4 2007.1 2007.2 2007.3 2007.4 2008.1 2008.2 2008.3 2008.4 0.00% 7
Unemployment Trust Fund Solvency Above Average >.71 AHCM (25 States) plus DC Average.53 -.70 AHCM (2 States) Potential Risk.31 -.52 AHCM (11 States) Watch States <.30 AHCM (11 States) Title XII Outstanding Loans (1 States) Source: U.S. Department of Labor Third Quarter 2008 AHCM Title XII Loans as of September 30, 2008 Average High Cost Multiple (AHCM) is a standard measure of trust fund solvency used by the USDOL. A multiple of 1.0 indicates the state trust fund is sufficiently solvent. 8
Unemployment Trust Fund Solvency Above Average >.71 AHCM (20 States) plus DC Average.53 -.70 AHCM (6 States) Potential Risk.31 -.52 AHCM (8 States) Watch States <.30 AHCM (5 States) Title XII Outstanding Loans (11 States) Source: U.S. Department of Labor Fourth Quarter 2008 AHCM Title XII Loans as of March 9, 2009 Average High Cost Multiple (AHCM) is a standard measure of trust fund solvency used by the USDOL. A multiple of 1.0 indicates the state trust fund is sufficiently solvent. 9
Unemployment Trust Fund Solvency Above Average >.71 AHCM (20 States) plus DC Average.53 -.70 AHCM (6 States) Potential Risk.31 -.52 AHCM (8 States) Watch States <.30 AHCM (2 States) Title XII Outstanding Loans (14 States) Source: U.S. Department of Labor Fourth Quarter 2008 AHCM Title XII Loans as of March 19, 2009 Average High Cost Multiple (AHCM) is a standard measure of trust fund solvency used by the USDOL. A multiple of 1.0 indicates the state trust fund is sufficiently solvent. 10
Total Unemployment Rate 0.0% - 3.9% TUR (9 States) 4.0% - 5.9% TUR (23 States) plus DC 6.0% - 7.0% TUR (10 States) 7.1% - 9.9% TUR (8 States) 10% > TUR (No States) Source: U.S. Department of Labor Third Quarter 2008 The Total Unemployment Rate (TUR) is the rate computed by dividing Total Unemployed by the Civilian Labor Force (Bureau of Labor Statistics) 11
Total Unemployment Rate 0.0% - 3.9% TUR (5 States) 4.0% - 5.9% TUR (21 States) 6.0% - 7.0% TUR (12 States) 7.1% - 9.9% TUR (12 States) plus DC 10% > TUR (No States) Source: U.S. Department of Labor Fourth Quarter 2008 The Total Unemployment Rate (TUR) is the rate computed by dividing Total Unemployed by the Civilian Labor Force (Bureau of Labor Statistics) 12
Total Unemployment Rate 0.0% - 3.9% TUR (1 States) 4.0% - 5.9% TUR (10 States) 6.0% - 7.0% TUR (9 States) 7.1% - 9.9% TUR (23 States) plus DC 10% > TUR (7 States) Source: U.S. Department of Labor February 2009 The Total Unemployment Rate (TUR) is the rate computed by dividing Total Unemployed by the Civilian Labor Force (Bureau of Labor Statistics) 13
FUTA Tax Review Potential Challenges FUTA Tax Rate 6.2% FUTA Taxable Wage Base $7,000 FUTA Tax $434 Per Employee If employer pays state SUI taxes timely and in full, a 5.4% credit is granted FUTA Tax Rate FUTA Tax Credit FUTA Tax Rate (less credit) FUTA Tax 6.2% 5.4% 0.8% $56 Per Employee If Federal Title XII loan remains outstanding for two years, employers in the affected state lose 0.3% of the 5.4% credit (or $21 per employee) 0.3% FUTA credit loss continues for every year the Federal Title XII loan remains unpaid (Example: Year 1 = 0.3%; Year 2 = 0.6%, etc.) 14
Federal Loan Title XII Update Outstanding Title XII Loans from the Federal Unemployment Account Balance as of March 31, 2009 is: State Year Loan First Taken Outstanding Loan Balance Michigan 2007 $1,779,800,000 Indiana South Carolina 2008 2008 $665,357,573 $237,318,190 Other Considerations: New York Ohio California Kentucky North Carolina Wisconsin Missouri New Jersey 2008 2008 2009 2009 2009 2009 2009 2009 $1,027,907,473 $666,137,799 $1,368,788,432 $178,600,000 $382,663,277 $275,926,629 $120,712,269 $225,671,833 Remaining FUA Fund: $9,963,954,604.52 California projects borrowings of $2.4B by end of 2009; $4.9B by end of 2010 Arkansas 2009 $40,643,313 Pennsylvania 2009 $213,560,938 Rhode Island 2009 $30,753,578 $7,213,841,304 15 15
American Recovery & Reinvestment Act (Unemployment Provisions) Temporary waiver of interest payments on federal loans $25 increase in weekly unemployment benefits Extension of Emergency Unemployment Compensation through December 2009 (33 weeks) Unemployment compensation modernization Adopt alternative base period, and, 2 of 4 cover part-time workers, cover voluntary quit for family reasons, train dislocated workers, dependent allowances 16 16
Tax Credits and Incentives 17
Tax Credits and Incentives Tax credits are financial incentive programs, created by federal, state and local governments to influence behaviors that stimulate the economy, and provide an economic offset to the cost of business. These incentives encourage: Businesses to hire targeted employees Transition of individuals from public assistance into employment Businesses to retain, locate or relocate into development areas Revitalization of economically distressed areas or communities Expansion of new or existing business - investments in plant, property and equipment Tax credits can be demographic (hiring based) or geographic (location based) Incentives come in the form of a tax credit, grant, rebate/refund or an economic development inducement that equates to cash (for example; utility discounts, land donations, training assistance) 18 18
Tax Credit and Incentive Benefits Minimizes Federal and State Tax Liability Maximizes Above the Line Savings Improves Tracking and Reporting Increased Earnings Per Share ( EPS ) Reduce Operating Costs Saves Significant Internal Resource Time Turns HR into Revenue Generator Empowers an Alternative Workforce 19 19
Work Opportunity Tax Credit (WOTC) WOTC offers employers an incentive to hire and retain employees who qualify as a member of a target group Tax savings up to $9,000 per eligible new hire Target categories (groups) include: A - TANF Recipient B - Qualified Veteran (Expanded to include Disabled Veteran C - Qualified Ex-Felon D - Designated Community Resident (18-39 Years Old) E - Vocational Rehabilitation Referral F - Qualified Summer Youth (16-17 Years Old) G - Qualified Food Stamp Recipient (18-39 Years Old) H - Supplemental Security Income Recipient I - Long-Term Family Assistance Recipient Qualified Katrina Employee (Self-certifying category) Unemployed Veteran Disconnected Youth 20 20
WOTC Category Updates President Obama signed The American Recovery and Reinvestment Act of 2009 on Tuesday, February 17, 2009. The Act creates two additional WOTC categories: 1) Unemployed Veterans and 2) Disconnected Youth (for hires in 2009 and 2010). Unemployed veteran is defined as an individual certified by the designated local agency as someone who: Has served on active duty (other than for training) in the Armed Forces for more than 180 days or who has been discharged or released from active duty in the Armed Forces for a service-connected disability; Has been discharged or released from active duty during the 5-year period ending on the hire date; and Has received unemployment compensation under State or Federal law for not less than four weeks during the one-year period ending on the hiring date. Disconnected youth is defined as an individual certified by the designated local agency as someone: At least age 16 but not yet age 25 on the hiring date; Not regularly attending any secondary, technical or post-secondary school during the sixmonth period preceding the hiring date; Not regularly employed during the six-month period preceding the hiring date; and Not readily employable by reason of lacking a sufficient number of skills. 21 21
Location Based Incentives Investment Incentives Withholding Tax Incentives Job Creation Incentives Enterprise Zone Incentives Sales and Use Tax Incentives 22 22
In Conclusion National trends will effect budget planning Employment tax compliance stay informed Verify tax rate assignments (protest if applicable) Review voluntary contribution and joint account planning options Mergers, Acquisitions and Divestitures - understand employment tax compliance obligations Tax Credits and Incentives provide additional planning strategies 23
Questions and Answers For more information please contact: Scott Bankert Sr. Tax Manager Tax Management Services TALX Corporation (912) 450 1813 Cell: (614) 893 7467 sbankert@talx.com 24
Provider of EQUIFAX WORKFORCE SOLUTIONS Update: Tax Intelligence 2009 Unemployment Taxable Wage Base Update January 2009 Situation A taxable wage base is the annual amount of wages paid by an employer to an employee that are subjected to unemployment taxes. Wage base limits are reviewed and adjusted annually. There are three primary employment taxes which are impacted by a wage limit FICA, FUTA, and state unemployment tax (SUI). For 2009, the Social Security portion of FICA wages up to $106,800 will be subject to tax and paid by both the employee and employer. FUTA taxes are paid by employers on the first $7,000 of wages. State unemployment taxes are employer paid taxes and the amount of wages subject to tax varies by state. Employers should consider wage base changes as they budget for 2009 employment tax costs. Solution All states have published 2009 unemployment taxable wage base limits (see below). State Wage Base State Wage Base State Wage Base State Wage Base AK $32,700 ID $33,200 NC $19,300 SC $7,000 AL $8,000 IL $12,300 ND $23,700 SD $9,500 AR $10,000 IN $7,000 NE $9,000 TN $7,000 AZ $7,000 KS $8,000 NH $8,000 TX $9,000 CA $7,000 KY $8,000 NJ $28,900 UT $27,800 CO $10,000 LA $7,000 NM $20,900 VA $8,000 CT $15,000 MA $14,000 NV $26,600 VI $22,100 DC $9,000 MD $8,500 NY $8,500 VT $8,000 DE $10,500 ME $12,000 OH $9,000 WA $35,700 FL $7,000 MI $9,000 OK $14,200 WI $12,000 GA $8,500 MN $26,000 OR $31,300 WV $8,000 HI $13,000 MO $12,500 PA $8,000 WY $21,500 IA $23,700 MS $7,000 PR $7,000 FUTA $7,000 MT $25,100 RI $18,000 SS Tax $106,800 Red Italics - Denotes increase in the unemployment taxable wage base over 2008 Based on changes in the taxable wage bases, forecasting the impact on unemployment tax costs is critical. In addition, employers planning mergers, acquisitions and divestitures throughout 2009 should analyze the financial impact of these legal entity changes. For more information, please contact your tax consultant or Pete Krieshok at (314)214 7325 or pkrieshok@talx.com. TALX and the TALX logo are registered trademarks of TALX Corporation. The information contained herein is subject to change without notice. Copyright 2009 TALX Corporation. All rights reserved. www.talx.com
Provider of EQUIFAX WORKFORCE SOLUTIONS Update: February 2009 Tax Intelligence Federal Title XII Advances Impact Unemployment Taxes Situation The current state of the national economy has adversely impacted state unemployment insurance (UI) trust fund solvency. Recent information provided by the Bureau of Labor Statistics indicates nonfarm payroll employment fell by 598,000 in January, and the national unemployment rate rose from 7.2% to 7.6% in the same month. Solution Title XII section 1201 of the Social Security Act provides for state advances (loans) from the Federal Unemployment Account when a state determines their unemployment trust fund will not have adequate reserves to allow for the payment of unemployment benefits during any 3 month period. The Governor of such state must apply for the advance no earlier than the first day of the month preceding the first month of the 3 month period; in addition, the Governor must supply the Secretary of Labor with an estimate of the advance which will be required by the State for the payment of compensation in each month of such 3 month period. Current States with Title XII loan balances as of February 9, 2009 State Loan Balances Michigan 1 $1,133,900,000 Indiana $335,594,325 South Carolina $122,820,631 New York $347,561,604 Ohio $186,437,799 California $113,369,032 Kentucky $25,034,000 If a state has an outstanding loan balance on January 1st of two consecutive years and has not repaid the balance by November 10th of the second year, employers in that state are at risk of a FUTA tax increase for that year. In the first year of the FUTA tax increase, the net FUTA tax rate changes from 0.80% to 1.10%. The FUTA tax rate can increase further if the loan remains outstanding on November 10th of subsequent years. The FUTA tax increase can be avoided if the state has repaid a sufficient portion of the outstanding loans and/or improved the solvency of the state unemployment trust fund by legislative changes. Value Through proactive analysis and understanding of state trust fund solvency issues, employers can minimize risk and more effectively budget for potential increases in tax cost. In the event of an impending merger, acquisition, reorganization, or divestiture additional employment tax planning and compliance issues should be examined. To obtain more information, please contact Pete Krieshok at (314)214-7325 or via email at pkrieshok@talx.com. 1 Employers in Michigan will likely incur 0.3% loss of FUTA credit in 2009. TALX and the TALX logo are registered trademarks of TALX Corporation. The information contained herein is subject to change without notice. Copyright 2009 TALX Corporation. All rights reserved. www.talx.com
Provider of EQUIFAX WORKFORCE SOLUTIONS Update: March 2009 Tax Intelligence Unemployment Trust Fund Solvency Update Situation The current state of the national economy has adversely impacted states unemployment insurance (UI) trust fund solvency. Recent information provided by the Bureau of Labor Statistics indicates job losses fell from January s 655,000 to 651,000 in February while the national unemployment rate rose from 7.6% in January to 8.1% in February. A key metric analyzed by the U. S. Department of Labor (USDOL) is the Average High Cost Multiple (AHCM). AHCM is an actuarial measure of trust fund solvency in the UI system. A state UI trust fund having an AHCM of 1.0 or more is considered to be adequately reserved by the USDOL. A multiple of 1.0 indicates the state trust fund can support twelve months of unemployment benefit payouts at the historically highest payout rate. Solution TALX continues to take a proactive approach in monitoring state unemployment trust fund solvency. Due to the nature of the unemployment tax system, current trust fund solvency issues will impact future unemployment tax rates. TALX has segmented the various states AHCM into five distinct groups. These groups will allow employers to isolate their high employment states and identify potential state trust fund solvency challenges. Above Average >.71 AHCM (20 States) plus DC Average.53 -.70 AHCM (6 States) Potential Risk.31 -.52 AHCM (8 States) Watch States <.30 AHCM (5 States) Title XII Outstanding Loans (11 States) Value Source: U.S. Department of Labor Fourth Quarter 2008 AHCM Title XII Loans as of March 2, 2009 Average High Cost Multiple (AHCM) is a standard measure of trust fund solvency used by the USDOL. A multiple of 1.0 indicates the state trust fund is sufficiently solvent. Through analysis and understanding of state trust fund solvency issues, employers can be proactive in unemployment budget planning, impact studies and rate projections. In the event of an impending merger, acquisition, reorganization, or divestiture additional employment tax planning and compliance issues should be examined. To obtain more information, please contact Pete Krieshok at (314)214-7325 or via email at pkrieshok@talx.com. TALX and the TALX logo are registered trademarks of TALX Corporation. The information contained herein is subject to change without notice. Copyright 2009 TALX Corporation. All rights reserved. www.talx.com
Provider of EQUIFAX WORKFORCE SOLUTIONS Update: March 2009 Tax Intelligence Work Opportunity Tax Credit (WOTC) Target Groups Situation The WOTC Program was established to offer tax incentives for hiring and retaining employees who qualify as a member of a targeted demographic group. With the recent passage of The American Recovery and Reinvestment Act (ARRA) of 2009, the WOTC program has been expanded, and offers two new categories. The information below provides a summary of all employee categories that are potentially eligible for the WOTC program. Through proactive planning and structured oversight, employers have an opportunity to reduce current and future federal income tax liability. Solution A properly managed WOTC program can potentially offer a tax savings up to $9,000 per eligible new hire. Employees who are members of the following target groups are eligible for the WOTC program: Target Group A: TANF Recipient - any applicant that has received TANF (Temporary Assistance for Needy Families replaced the Aid to Families with Dependent Children (AFDC) program) for any nine months within the last 18 months ending on the hire date. Target Group B: Qualified Veteran - any applicant that has been active in the military for 180 days and has received food stamps for three months within the last fifteen months ending on the hire date. This category was expanded to include Qualified Disabled Veterans. Target Group C: Qualified Ex-Felon - any applicant that has been convicted of a felony, placed on probation or released from prison within the year of the hire date. Target Group D: Designated Community Resident (formerly Empowerment Zone Resident) - any applicant that is between the ages of 18 and 39 and lives in a federal mandated Empowerment Zone, Enterprise Community, Renewal Community or Rural Renewal Community. Target Group E: Vocational Rehab Referral - any applicant that is participating in or has completed a vocational rehabilitation program within the last two years from the hire date. Target Group F: Qualified Summer Youth - any applicant that is between the ages of 16 and 17 years old and is hired between May 1 st and September 15 th. Target Group G: Qualified Food Stamp Recipient - any applicant that is between 18 and 39 years old and eligible for food stamp assistance. Benefits must be received within the last six months of the hire date, or three out of the last five months prior to the hire date. Target Group H: SSI Recipient - any applicant that has received SSI (Supplemental Security Income) within the last 60 days of the hire date. Target Group I: Long Term Family Assistance (formerly Welfare to Work Credit) - any applicant who has received TANF payments within the past two years. Qualified Katrina Employee (extended October, 2008) Self-Certifying Category (no documentation required from employee) - Any employee who resided in the Katrina Disaster Area (AL, LA, or MS). Unemployed Veterans (Created by ARRA) - Veterans who have been unemployed for at least six months. Disconnected Youth (Created by ARRA) - 16-24 year olds, who are unemployed, not in school and do not have defined skills. Value For more information on the impact of work opportunity tax credits and potential savings, please contact Pete Krieshok at (314) 214-7325 or via email at pkrieshok@talx.com. TALX and the TALX logo are registered trademarks of TALX Corporation. The information contained herein is subject to change without notice. Copyright 2009 TALX Corporation. All rights reserved. www.talx.com
Provider of EQUIFAX WORKFORCE SOLUTIONS Update: April 2009 Tax Intelligence 2009 Unemployment Tax Rate Schedule Situation Each year, states adjust and release their unemployment tax rate schedules. Factors such as trust fund balances, economic conditions, and state legislation impact employer tax rate assignments. Although significant changes did not occur in 2009, TALX anticipates the current economic recession will impact tax rate schedules in 2010 and 2011. Solution Below is the final list of 2009 state minimum and maximum unemployment tax rate assignments. State Minimum Rate Maximum Rate State Minimum Rate Maximum Rate AK 1.00% 5.40% NC 0.00% 6.84% AL 0.74% 6.34% ND 0.20% 9.86% AR 0.90% 10.80% NE 0.00% 5.40% AZ 0.02% 5.40% NH 0.10% 6.50% CA 1.50% 6.20% NJ 0.30% 5.40% CO 0.00% 11.02% NM 0.03% 5.40% CT 1.90% 6.80% NV 0.25% 5.40% DC 1.30% 6.60% NY 1.225% 9.625% DE 0.30% 8.20% OH 0.70% 9.40%* FL 0.12% 5.40% OK 0.10% 5.50% GA 0.03% 6.21% OR 0.90% 5.40% HI 0.00% 5.40% PA 1.837% 9.9836%* IA 0.00% 8.00% PR 1.40% 5.40% ID 0.447% 5.40% RI 1.69% 9.79% IL 0.60% 6.80% SC 1.24% 6.10% IN 1.10% 5.60% SD 0.00% 9.06% KS 0.00% 7.40% TN 0.30% 10.00% KY 1.00% 10.00% TX 0.26% 6.26% LA 0.10% 6.20% UT 0.20% 9.20%* MA 1.26% 12.27% VA 0.18% 6.28% MD 0.60% 9.00% VI 0.00% 6.00% ME 0.44% 5.40% VT 1.10% 7.70% MI 0.06% 10.30%* WA 0.35% 6.00%* MN 0.556% 10.702% WI 0.05%** 9.80% MO 0.00% 9.70% WV 1.50% 8.50% MS 0.70% 5.40% WY 0.30% 9.10% MT 0.13% 6.30%* * These states have additional PENALTY rates that exceed the maximum rate (noted above) ** WI minimum rate 0.05% (less than $500,000 in taxable payroll) and 0.10% ($500,000 or more in taxable payroll) Value TALX continues to monitor many factors that will influence unemployment taxes in the coming years. To obtain more information on unemployment budget planning and unemployment rate forecasting for 2010, please contact Pete Krieshok at (314)214-7325 or via email at pkrieshok@talx.com. TALX and the TALX logo are registered trademarks of TALX Corporation. The information contained herein is subject to change without notice. Copyright 2009 TALX Corporation. All rights reserved. www.talx.com