More UI FAQs:
Special Message to Employers:
Information on Special Assessment for Interest
Like many other states, Wisconsin’s Unemployment Insurance (UI) Reserve Fund had to rely on federal loans to help fund unemployment benefits paid to record numbers of claimants during and following the deep national recession of 2007-09.
The federal government began charging states interest on these loans in 2011, and Wisconsin in September 2011 made its first payment, totaling $42.3 million, with funds collected through a special assessment on employers.
Thanks to a number of factors, including an improved economy, we are pleased to report that the next interest payment, due on September 30, 2012, is estimated to be $35.6 million, meaning the special assessment rates for employers is significantly less this year.
Taxable employers will pay an estimated $16.51 less per employee in 2012 than the $26.99 charged in 2011, a reduction of 61 percent. Reimbursable employers will pay $12.38 less per employee in 2012 than the $20.24 charged in 2011, also a reduction of 61 percent.
Lower rates are as a result of factors such as a lower federal interest rate, an improving economy, fewer unemployment benefit claimants, larger taxable wage base, use of carryover funds, and a reduction in the average federal loan balance.
Because employer unemployment taxes are restricted by the federal government to only paying benefits, Wisconsin’s UI program will continue to utilize a special assessment on employers to raise the funds to pay the federal loan’s interest expense as prescribed by state statute. At this time, we anticipate the loan will be fully repaid by the end of 2014. Based on the current economy, future assessments for the remaining two years are expected to be similar to or less than the 2012 assessment.
Frequently Asked Questions
- Q1. What is the Special Assessment for Interest?
- Due to the previous national recession, many states including Wisconsin exhausted their state funds to pay Unemployment Insurance (UI) benefits to a record number of UI claimants. As a result, states such as Wisconsin were required to borrow from the federal government to pay all of its claims. Currently, Wisconsin is one of 22 states with outstanding federal loan balances. The federal government began charging states interest on these borrowed funds effective January 1, 2011, and the Special Assessment for Interest is the mechanism Wisconsin has in statute to raise funds to pay this interest payment.
- Q2. Who is being assessed this interest?
- In accordance with Wisconsin statute, employers who are affected are those who are subject under unemployment law as of the date the rate is established and whose taxable payrolls for the previous calendar year were greater than $25,000. The rate for reimbursable employers (pay unemployment benefit costs as expenses occur) is statutorily set at 75% of the rate charged to taxable employers (pay unemployment taxes based on experience rating).
- Q3. Why are reimbursable employers being assessed?
- While reimbursable employers, by definition, reimburse UI for all benefits paid to claimants on their behalf, they are not paying for the administration of the unemployment program, which is funded by Federal Unemployment Taxes (FUTA) paid by taxable employers only. Additionally, the program pays benefits on behalf of the reimbursable employers and is not reimbursed for 30 to 60 days, during which time the employer has the benefit of the "float" For these reasons, reimbursable employers are assessed interest, but at a rate, as prescribed in statute, which is 75% of the rate assessed for taxable employers.
- Q4. I have a positive Reserve Fund balance. Why am I being assessed?
- The Special Assessment for Interest is statutorily required to be assessed on
all subject employers whose taxable payroll for the preceding calendar year was
greater than $25,000. The Special Assessment for interest is not
experience rated so there is no consideration if a balance is positive or
An employer’s reserve fund balance is used for experience rating purposes only, in the calculation of an employer’s reserve percentage (the ratio of their reserve fund to their taxable payroll). With experience rating, employers with higher reserve percentages have a lower tax rate, while employers with a lower or negative reserve percentage pay a higher tax. Employers are experience rated for purposes of their unemployment insurance basic contribution taxes only.
- Q5. What is the Special Assessment tax rate?
- For employers subject to the assessment, the rate for 2012 for taxable employers is 0.0806% and the rate for reimbursable employers is 0.0605%. As noted above, Wisconsin statutes set the rate for reimbursable employers at 75% of the taxable employer rate. Special assessments are expected to be needed in 2013 and 2014 until the federal loan balances are fully repaid. Based on the current economy, future assessments are expected to be similar to or less than the rates charged in 2012.
- Q6. How will my total interest assessment be calculated?
- In 2012, employers’ assessments will be calculated using either 0.0806% rate for taxable employers or the 0.0605% rate for reimbursable employers multiplied by the employer’s 2011 calendar year taxable payroll. For example:
- A taxable employer with total taxable payroll of $500,000 in 2011, with an assessment rate of 0.0806% would be charged $403.00, [$500,000 x 0.000806].
- A reimbursable employer with total taxable payroll of $500,000 in 2011, with an assessment rate of 0.0605% would be charged $302.50, [$500,000 x .000605].
- Q7. How does the assessment translate to a per employee cost?
- The first $13,000 of each employee’s wages is taxable for unemployment insurance purposes. Taxable employers will be charged up to $10.48 per employee [$13,000 X 0.000806] and reimbursable employers will be charged up to $7.86 per employee [$13,000 X 0.000605].
- Q8. How do 2012 assessments compare to 2011?
- Special assessment rates are significantly less than those charged in 2011. Taxable employers will pay $16.51 less per employee in 2012 than the $26.99 charged in 2011. Reimbursable employers will pay $12.38 less per employee in 2012 than the $20.24 charged in 2011. Lower rates are as a result of factors such as a lower federal interest rate, an improving economy, fewer unemployment benefit claimants, higher taxable wages, use of carryover funds and a reduction in the average federal loan balance.
- Q9. Are other states implementing a Special Assessment for Interest?
- Currently, there are 22 states with outstanding loan balances with the federal government that will need to raise money to pay interest. Failure to pay the interest by September 30, 2012, will expose the state to loss of federal grant funding to administer the UI program, as well as the loss of federal unemployment tax credits for employers, which is currently 5.1% for Wisconsin. Unless a state is willing to use revenue from another source, other states will utilize some sort of a new charge on employers to generate funds to pay interest costs.
- Q10. How long has the Reserve Fund been negative?
- The Trust Fund for Wisconsin was depleted in February 2009, during what was the worst national recession since the Great Depression. Wisconsin was one of many states that relied on federal loans from the U.S. Treasury to help pay benefits to a record number of UI claimants. The American Recovery and Reinvestment Act of 2009 waived interest due through December 31, 2010. Interest began to accrue on January 1, 2011. The Reserve Fund loan balance as of June 30, 2012 was $926 million.
- Q11. When is interest due?
- As previously noted, the first interest payment of $42.3 million was paid on September 30, 2011. Additional annual interest payments are due to the federal government on September 30 of each succeeding year until the loan is paid off.
- Q12. When will I receive my bill and when will my payment be due?
- We anticipate mailing 2012 bills August 13-17, 2012, with a due date of September 17, 2012 to make the payment to the federal government by September 30, 2012.
- Q13. What if the payment is not made by the due date?
- If your payment is not received by the due date specified on the Special Assessment for Interest statement, interest at a rate of .75% per month will begin to accrue on your outstanding balance.
- Q14. How can I pay the Special Assessment for Interest?
- The Special Assessment for interest can be paid electronically using our online internet reporting and payment system, ACH Credit, or by check. If paying by check, no penalty will be assessed if required to pay electronically. If paying by ACH Credit, enter 120917 in the tax period end date field of the addenda record.
- Q15. What if my business is closed?
- In accordance with Wisconsin statute, employers who are affected are those who are subject under unemployment law as of the date the rate is established and whose taxable payroll for the previous calendar year was greater than $25,000.