Reimbursing & Government Employers

Overview

Contributions are paid to the Texas Workforce Commission (TWC) in one of two ways:  taxes or reimbursements.  Taxed employers pay taxes every quarter.  Reimbursing employers, which include certain non-profit and government employers, pay no taxes but must repay TWC for unemployment benefits paid to eligible former employees.

A reimbursing employer is required to report wages for employees. If unemployment benefits are paid to former employees, the employer is billed quarterly for the amount of regular benefits and 50 percent of any federal extended benefits paid during the prior quarter, except for government employers who pay 100 percent of federal extended benefits.

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Which Employers Pay Reimbursements

The following employers may pay reimbursements instead of unemployment taxes:

  • A political subdivision of the state which chooses to be a reimbursing employer including municipalities, counties, utility districts, public education institutions, etc.
  • A non-profit organization described in Section 501(c)(3) of the Internal Revenue Code
  • State government agencies
  • An American-Indian tribe or any of its governing bodies

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How Reimbursements are Paid

TWC will send you a Reimbursable Unemployment Benefits Statement. Reimbursement payments are due on the specified due date and may be made using any of the payment options for Unemployment Insurance tax. A reimbursing employer is subject to the same penalties as a taxed employer for failure to file reports or make payments on time.

Electronic funds transfers are required for an employer that paid reimbursements in the preceding state fiscal year of $250,000 or more and anticipates doing the same in the current fiscal year.

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Advantages & Disadvantages of Paying Reimbursements

To choose to become a reimbursing employer is comparable to making a decision to discontinue carrying casualty insurance. If no casualty occurs, the cost of the premium has been saved. Likewise, if no former employee is paid unemployment benefits, the organization has saved the cost of the tax. Below are matters to consider when choosing an election.

Advantages

  • If no benefits are paid to a former employee of a reimbursing employer, the organization will have no reimbursements to pay.
  • Even if some benefits are paid, the amount of reimbursements to be paid over a period of time may be less costly than payment of the tax for the same period.

Disadvantages

  • To elect to become a reimbursing employer is comparable to making a decision not to carry auto insurance. One's liability may be much greater.
  • A taxed employer normally knows in January of each year their tax rate for the calendar year whereas a reimbursing employer never knows their potential liability and may be required to pay reimbursements more than two years after the individual has been separated from their employment.
  • A reimbursing employer may be required to post a surety bond to insure that reimbursements are made. It is possible that the cost of such a bond could be greater than the tax. (This provision of the law has never been employed by the Texas Workforce Commission.)

Note: Two or more reimbursing employers may file a joint application with the Commission for the establishment of a group account for the purpose of sharing the cost of benefits paid to former employees of the members of the group account. Formation of such a group account would help spread the cost among the members; however, members would be required to pay reimbursements for benefits paid to any former employee or any member of the group and this may or may not be an advantage. (Political Subdivisions already have a taxed group account)

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Electing to Pay Reimbursements

Eligible employers must complete an Election to Pay Reimbursements (Form C-6A) to elect to pay reimbursements. For a newly-established employer tax account, this form must be submitted to TWC within 45 days from the date the liability notice letter is sent to the employer. For previously established taxed employers, the application must be received by December 1st to change the status for the next calendar year.

After their status is established, employers must remain a taxed or reimbursing employer for at least two calendar years before requesting to change that status. Reimbursing status may be changed by filing the Application for Withdrawal of Election to Pay Reimbursements (Form C-6F) with TWC no later than December 1. The new status takes effect January 1 of the following year.

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Group Accounts

The Texas Unemployment Compensation Act (TUCA) provides that two or more reimbursing employers may file a joint application with TWC to establish a group account for the purpose of sharing the costs of unemployment benefits paid to former employees.

The members of a group must designate an individual to act as the group representative for submitting reports and paying reimbursements.

The advantage in forming such a group is that the risk to a member for payments of reimbursements may be shared among all members. On the other hand, a member may be required to share in the reimbursements although no former employees have been paid unemployment benefits.

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Tax Rates for Government Employers

Unemployment Insurance tax rates are calculated for taxed government employers as a group. All taxed government employers will have the same rate in a given year. Unemployment Insurance tax rates for taxed government employers are determined by how much all government employers have withdrawn from the Unemployment Compensation Trust Fund in benefit payments to their former employees as compared to the amount of taxes that they paid.

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Unemployment Tax Registration