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Your effective Unemployment Insurance (UI) tax rate is the sum of five components described below. Your effective tax rate multiplied by your taxable wages determines the amount of tax you pay. Your taxable wages are the sum of the wages you pay up to $9,000 per employee per year.
The first four tax rate components play a role in ensuring adequate funding of benefit payments and ongoing solvency of the Unemployment Compensation Trust Fund.
The first component of your effective UI tax rate is the General Tax Rate (GTR), a tax that reflects your company's individual responsibility for repaying benefits paid to former workers. The GTR is the experience-rated portion of your tax. It is called experience-rated because it is based on benefits that have been paid to former employees of your business and charged to your account, known as chargebacks.
Your GTR is calculated by multiplying your benefit ratio by the 2017 replenishment ratio of 1.30 percent. The purpose of the replenishment ratio is to recoup half of the benefits paid to eligible workers not charged to any specific employer. Your benefit ratio is the result obtained by dividing the last three years of chargebacks to your account by the last three years of taxable wages you have paid to your employees.
The three-year period used to calculate the 2017 tax rate was from the fourth quarter of 2013 to the third quarter of 2016. If you have no chargebacks for the past three years and have reported and paid taxable wages for the same period, your general tax rate is zero (0.00 percent). Each year, TWC calculates the GTR using this formula:
GTR = (Three Years of Chargebacks ÷ Three Years of Taxable Wages) × Replenishment Ratio
Be aware that your GTR can be negatively impacted if UI taxes are not reported and paid on time.
The second component of your UI tax rate is the Replenishment Tax Rate (RTR), a flat tax paid by all employers. Its purpose is to replenish the Unemployment Compensation Trust Fund for the other half of the benefits paid to eligible workers that were not charged to any specific employer. Since no one employer can be held liable for these benefits, the Legislature decided to spread the cost among all experience-rated employers. Each year, TWC calculates the RTR using this formula:
RTR = One-half benefits paid but not charged to any employer ÷ One Year’s Total Taxable Wages
The RTR for 2017 is 0.41 percent. Note that this RTR was reduced by .10 percent to offset the Employment and Training Investment Assessment (ETIA) component, explained below.
The third component of your tax rate is the unemployment Obligation Assessment (OA). The purpose of the OA is to collect amounts needed to pay bond obligations due in 2017 and also collect interest due on federal loans to Texas used to pay unemployment benefits.
The OA is the sum of two parts, the Bond Obligation Assessment Rate and the Interest Tax Rate.
The Bond Obligation Assessment Rate is determined by this formula:
(Prior Year Rate x Obligation Assessment Ratio) x Yield Margin percentage, rounded to the nearest hundredth. The prior year rate is the sum of your 2016 General Tax, Replenishment Tax, and Deficit tax.
The Commission sets the Obligation Assessment Ratio and the Yield Margin (percentage). Those two factors are the same for all employers subject to the OA.
The 2017 Obligation Assessment Ratio (OA Ratio) is 0.17 percent.
The OA Ratio is calculated according to Commission Rule:
OA Ratio = Principle, interest and administrative expenses due in 2017 on outstanding bonds ÷ Tax due from the General and Replenishment tax rates for the four quarters ending June 30th of the previous year
The result is rounded to the next hundredth.
The 2017 Yield Margin is 1.00 percent. The Yield Margin is adopted by Commission resolution.
The Interest Tax Rate is used to pay interest on federal loans to Texas, if owed, used to pay unemployment benefits. This percentage will be the same for all employers in a given year. The Interest Tax is calculated according to Commission Rule.
The Interest Tax Rate for 2017 is 0.00 percent.
The fourth component of your tax rate is the Deficit Tax Rate (DTR). If the amount of money in the Unemployment Compensation Trust Fund on a tax rate computation date is less than an established minimum level, a DTR is added for the next calendar year for each experience-rated employer.
The Deficit Tax Rate is determined by this formula:
Prior Year Rate x Deficit Ratio, rounded to the nearest hundredth (limited to 2%)
The 2017 Deficit Tax Ratio is 0.10 percent.
The fifth component of your tax rate is the Employment and Training Investment Assessment (ETIA). The assessment is imposed on each employer paying contributions under the Texas Unemployment Compensation Act as a separate assessment of 0.10 percent of wages paid by an employer. Money from the assessment is deposited to the credit of the employment and training investment holding fund. By law, the Replenishment Tax Rate is reduced by the same amount, so there is no increase in your tax rate due to this assessment.
Your Effective Tax Rate for 2017 = General Tax Rate (GTR) + Replenishment Tax Rate (RTR) + Obligation Assessment Rate (OA) + Deficit Tax Rate (DTR) + Employment and Training Investment Assessment (ETIA)
Minimum Tax Rate for 2017 is 0.59 percent.
Maximum Tax Rate for 2017 is 8.21 percent.
You pay unemployment tax on the first $9,000 that each employee earns during the calendar year. Your taxable wages are the sum of the wages you pay up to $9,000 per employee per year.