When Is an Employer Eligible for an Experience Tax Rate?

An employer is eligible for an experience tax rate as soon as his account has been chargeable with benefits throughout four calendar quarters. Since an employer's account is first chargeable when wages can be used in a claim for benefits, an employer will be liable for payment of the tax at his original tax rate for a period of six to eight quarters before he is eligible for an experience rate.

When Is an Employer's Experience Transferred to a Successor Employer?

An employer's experience is transferred to a successor employer when all or part of the organization, trade, business, or workforce of another that was an employer subject to this Act at the time of the acquisition, is acquired; the operation of the organization or business is continued and certain relationships exist between the predecessor and successor as prescribed in TUCA. There is no provision in the law for voluntary total transfer of experience.

A partial transfer of experience is possible when:

• A complete and approvable written application is made by both the predecessor and successor, within one year of the date of the acquisition;
  
  
• The acquired portion of the organization is identifiable and can be segregable; the successor employer must acquire a distinct and separable part of the organization, trade, or business that is capable of operating independently and separately from the predecessor employer; the wages attributable to the acquired part of the organization, trade or business must be separate and distinct from other wages of the predecessor employer and must be solely attributable to services provided on behalf of the acquired part of the organization, trade, or business.
  
  
• The application is approved by the Commission.

How Is an Experience Tax Rate Computed?

Annual experience tax rates are computed as of October 1 to be effective for the following calendar year, and notices of the rates are mailed to employers in December.

An employer's benefit ratio is the result obtained by dividing the total benefits paid to his former employees and charged to his account during the preceding 36 months by the employer's total taxable payroll on which taxes have been timely paid for the same 36 months. If the employer has less than 36 months but at least four calendar quarters throughout which his account has been chargeable with benefits, his computation will be based on all calendar quarters immediately preceding the computation date.

The replenishment ratio is the result obtained by dividing the total effectively charged benefits paid during the 12 month period preceding the October 1 rate computation date plus one-half of the ineffectively charged benefits for the same period by the total amount of benefits paid for the same period that are effectively charged. Canceled benefit warrants, repaid benefits which were overpaid, and benefits paid which are repayable from reimbursing employers, the Federal Government, or any other governmental entity are excluded from this computation.

An employer's general tax rate is determined by multiplying his benefit ratio by the statewide replenishment ratio for that year. Following is an example of the computation of an employer's experience tax rate or general rate:

• Total amount of benefits paid to former employees of a taxed employer and charged to his account for the period from October 1, 2007 to September 30, 2010 = $400.
  
  
• Total taxable wages paid by an employer during above period on which the tax was timely paid = $40,000.
  
  
• The employer's Benefit Ratio is, therefore, $400 ÷ $40,000 = 1.00%
  
  
• Assume that the statewide Replenishment Ratio for Texas for 2011 tax rates = 1.28%
  
  

Then, the employer's general tax rate will be 1.00% x 1.28 = 1.30%.

TUCA contains a table which provides an easy method to determine the computed general rate. The table shows the various computed general tax rates depending upon the replenishment ratios and the employer's benefit ratio. These rates vary from 0 to 6%.

The floor amount of the Unemployment Compensation Fund is the greater of four hundred million dollars ($400,000,000) or one percent (1%) of total taxable wages for the four calendar quarters ending June 30 preceding the rate computation date. Rate increases based on the floor amounts are computed according to a formula to determine the deficit ratio as prescribed by TUCA.

The deficit ratio is multiplied by the sum of the employer's general tax rate, the replenishment tax rate and deficit tax rate imposed for the calendar year in which the calculation is made to determine the employer's deficit tax rate. The calculated value of the employer's deficit tax rate may not exceed two percent (2%).

The ceiling amount of the Unemployment Compensation Fund is two percent (2%) of total taxable wages for the four calendar quarters ending June 30 preceding the rate computation date. Tax Credits based on the ceiling amounts are computed according to a formula whereby a surplus ratio is obtained using the total amount of taxes due from experience rated employers during the four calendar quarters preceding the computation date as the denominator and the amount by which the fund is above the ceiling as the numerator. The surplus ratio is multiplied by the employer's contributions due for the four calendar quarters ending September 30 preceding the computation date to obtain a credit amount which the employer may apply against his taxes in the ensuing year. The credit may not be applied against delinquent taxes or applied in any manner until the employer has paid any delinquent taxes he owes.

A Replenishment Tax is assessed against all experience rated employers. The tax rate is a percentage obtained by using one-half of the ineffectively charged benefits paid during the twelve months preceding the calculation date as the numerator and total taxable wages for the four quarters ending the preceding June 30 as the denominator.

The employers' Effective Tax Rate is the sum of the general, deficit and replenishment tax rates.

The Commission has the authority to levy a separate interest tax on each experience rated employer. The rate may not exceed 0.2%. The proceeds of the interest tax can be used by the Governor solely to pay interest on advances from the Federal Unemployment Trust Fund.

The Commission also has the authority to sell bonds as an alternative to finance shortfalls in the Unemployment Compensation Trust Fund. The purpose of the Bond Obligation Assessment Rate is to collect the amount needed to repay bond obligation due next year. It is calculated by multiplying the sum of the employer's prior year general tax rate, replenishment tax rate, and deficit tax rate by the product of the obligation assessment ratio and the yield margin (percentage). This rate is included in the employer's effective tax rate in the years it is assessed.

How Can Employers Reduce Their Tax Rate?

The Voluntary Contribution Election is an option a private employer can exercise by voluntarily paying in all or part of their share of the benefits paid to former employees rather than repaying the benefits through an increase in their unemployment tax rate. An application for voluntary contribution will accompany the annual tax rate notice for accounts that have been charged with unemployment benefits affecting their rate. The election must be made no later than 60 days from the mailing of the Annual Tax Rate Notices. The election may not be revoked once the Commission has recomputed the tax rate.

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