What is the unemployment insurance tax rate for a new employer in the District of Columbia?
Employers who are newly liable for unemployment compensation taxes are assigned a standard tax rate equal to the average rate of contributions paid by all employers during the preceding year, or 2.7 percent, whichever is higher. A new employer rate remains in effect until the employer can be rated based on experience. It is a four to five year period before an experience rate can be assigned depending on the date of liability. All new employers, including construction companies, are assigned the same standard rate.
How is the unemployment insurance tax rate for other-than-new employers computed?
Employers, other than those who are newly liable, are rated based on their experience in the UI program. The experience rate is designed to ensure that each employer contributes its fair share to the Trust Fund. Generally, higher rates are assigned to employers with high employee turnover because their unemployment "experience" results in greater Trust Fund outlays.
Several factors determine the actual experience rate.
These include the following:
- The amount of unemployment insurance benefits paid to former employees that are charged to an employer's account
- The amount of taxes paid
- The average size of an employer's annual taxable payroll for the three preceding years
An employer's tax rate is also determined by the status of the Trust Fund. During each calendar year, one of six tax tables is in effect, depending on the balance in the Trust Fund as of September 30th. If the Trust Fund balance is low, one of the tables with higher average tax rates will be in effect. If the Trust Fund balance is higher, one of the tables with lower average tax rates will be in effect.
What is taxable under District of Columbia unemployment insurance law?
Employers who pay contributions (contributory employers) pay a tax based on their assigned tax rate and wages paid to each employee up to the taxable wage base that is in effect for the calendar year.
The following are examples of how to determine wages that are taxable:
Examples of Taxable Wage Calculations
Employee A: Wages never exceed taxable wage base of $9,000 for this calendar year.
| Reporting Quarter | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 |
|---|---|---|---|---|
| Wages Paid | $2,000 | $2,000 | $2,300 | $2,000 |
| Non-taxable Wages | $0 | $0 | $0 | $0 |
| Taxable Wages | $2,000 | $2,000 | $2,300 | $2,000 |
Employee B: Wages exceeded taxable wage base of $9,000 in 2nd quarter.
| Reporting Quarter | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 |
|---|---|---|---|---|
| Wages Paid | $4,500 | $5,500 | $6,000 | $5,000 |
| Non-taxable Wages | $0 | $1,000 | $6,000 | $5,000 |
| Taxable Wages | $4,500 | $4,500 | $0 | $0 |
Employee C: Wages exceeded taxable wage base of $9,000 in the 1st quarter.
| Reporting Quarter | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 |
|---|---|---|---|---|
| Wages Paid | $20,000 | $20,000 | $20,000 | $25,000 |
| Non-taxable Wages | $11,000 | $20,000 | $20,000 | $25,000 |
| Taxable Wages | $9,000 | $0 | $0 | $0 |
Employee A+B+C: Quarterly Totals
| Reporting Quarter | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 |
|---|---|---|---|---|
| Total Wages Paid | $26,500 | $27,500 | $28,300 | $32,000 |
| Total Non-taxable Wages | $11,000 | $21,000 | $26,00 | $30,000 |
| Total Taxable Wages | $15,500 | $6,500 | $2,300 | $2,000 |
Wages are only taxable once during a year regardless of whether they were reported to another state. For example, if you had an employee working in another state and paid taxes on his/her wages up to $8,500, and then moved the employee to a DC job site, only the first $500 of wages paid in DC would be taxable (the difference between DC's taxable wage base of $9,000 and the $8,500 in wages that were already taxed).
Can I reimburse the Trust Fund rather than contribute taxes? Is it to my advantage?
Only employers who qualify as non-profit organizations under Section 501(c)(3) of the Internal Revenue Code and government entities have the option of reimbursement. Reimbursement is a form of self-insurance. Under the reimbursement option, eligible employers are required to pay each quarter an amount equal to the benefits paid to their former employees. Reimbursable employers submit quarterly payroll reports, the same as tax-paying employers. They do not, however, include payment with their report. Every quarter a bill is sent which lists benefits charged to their account. The bill is payable within 30 days of the mailing date. Interest and penalty are assessed for delinquent payments.
If an employer chooses reimbursement, this option must remain in effect for a minimum of two calendar years. After this two-year period, a change to tax-paying status must be requested in writing.
Some factors to consider in deciding whether to choose the reimbursement option are as following:
- Turnover rate: generally reimbursement is more advantageous to employers with stable employment;
- Estimation of cost: tax-paying employers have known costs based on their tax rate, payroll and the taxable wage base, while reimbursable employers could have varying costs, depending on the number of former employees receiving benefits.
- Charging of benefits: there are instances where the cost of benefits are not charged to contributory employers, i.e. when benefits are paid subsequent to a claimant's requalifying after being disqualified for voluntarily leaving his/her last employer without good cause connected with the work or for misconduct in the course of the last work, all base-period contributory employers automatically are relieved of charges; non-charging of benefits does not apply to a reimbursable employer, such employers are responsible for all regular unemployment insurance benefits charged to their accounts.
- Extended benefits: during periods of high unemployment when extended benefits are paid, reimbursable employers are responsible for all of the non-federal share of extended benefits charged to their accounts. (Contributory employers are not assessed charges for extended benefits.)
- Overpayments: contributory employers' accounts are credited for the full amount of established benefit overpayments; the accounts of reimbursable employers are credited only to the extent that repayment of the overpayment is made by the claimant.
Contact the UI Tax Division:
(202) 698-7550
[email protected]