1. Mitigating Overpayment of Employment Taxes
24th Annual Illinois Statewide APA Payroll Conference “Be a Payroll Champion”
Mitigating Overpayment of Employment Taxes

2. Presenters Scott Bankert Regional Manager Employment Tax Consulting

3. Notice/Disclaimer
The information provided herein is intended as general guidance and is not intended to convey specific tax or legal advice.
This webinar is intended for the benefit of our customers and potential customers. This webinar cannot be shared with third parties.

4. Agenda General Overview Common Causes of Overpaid Employment Taxes:
State Unemployment Insurance (SUI) Rate Revisions
Mid-Year Wage Base Carryover
Multi-State SUI Sourcing
Out-of-State SUI Wage Credits
Credits on Account
Other Opportunities
Summary
Questions and Answers

5. Federal Unemployment Insurance Unemployment Insurance
Employment Tax Types
Social
Security
Insurance
(FICA)
Federal Unemployment Insurance
(FUTA)
State
Unemployment Insurance
(SUI)
Tax Rate:
2016/ %
Wage Base:
2016 – $118,500
$127,200
Max Tax Cost:
2016 – $7,347
2017 – $7,886
Tax Rate:
2016/ %(1)
Wage Base:
2016 – $7,000
2017 – $7,000
Max Tax Cost:
2016 – $42
2017 – $42
Tax Rate:
2016 – 2.51%(2)
Wage Base:
2016 – $17,800(3)
2017 – $18,085(3)
Est. Avg. Tax Cost:
2016 – $447
Rate does not take into consideration the impact of FUTA credit reductions (CA and VI had a net FUTA rate of 2.4% for 2016).
Total SUI tax revenues for all taxing jurisdictions divided by total SUI taxable payroll, per the U.S. DOL has not been released yet.
Simple average of all taxing jurisdictions for 2016 and estimated simple average for 2017.

6. The costs of unemployment remain escalated despite an improved economic environment
$5,259
Average benefit paid per
unemployment claim
(3Q 2016)1
$3,104,032,870
Title XII Loans Outstanding
(3/21/2017)4
10.26%
National Annual Benefit Charge
Overpayment Rate
(2015)5 2
States Facing FUTA Tax Increases in 2017
(as of 3/21/2017)4
$446
Average Tax Cost Per Employee
(2016)2
15.5
Average Weeks A
Person Draws Unemployment
(3Q 2016) 1
4.7%
National Total
Unemployment Rate
(February 2017)3
$39,632,905
Title XII Loan Interest – 2017
(accrued as of 3/21/2017) 4 35
Underfunded state trust funds
(10/1/2016) 1
129%
Amount of each benefit paid that employers must contribute to their state trust fund
(3Q 2016) 1
Source: As of 1/7/2017
1. U.S. DOL Data Summary
2. Simple average of SUI wage bases*U.S. DOL Average Tax Rate
3. Bureau of Labor Statistics Monthly Current Population Survey
4. Treasury Direct Title XII Advance Activities Schedule
5. U.S. DOL Benefit Accuracy Measurement Report

7. SUI Tax Rates in 2017 and Beyond – U.S.
Source: Average SUI Tax Rate (%) per U.S. Department of Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.

8. SUI Tax Rates in 2017 and Beyond – U.S.
Approx. 2.5% increase per year
Source: Average SUI Tax Rate (%) per U.S. Department of Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.

9. SUI Tax Rates in 2017 and Beyond – U.S.
$17,782
$13,268
Source: Average SUI Tax Rate (%) per U.S. Department of Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.

10. SUI Tax Rates in 2017 and Beyond – U.S.
Tom
Source: Average SUI Tax Rate (%) per U.S. Department of Labor. Average SUI Tax Rates beyond 2016 are estimates and for illustrative purposes only and should be not be relied upon in budgeting or as a basis for material financial decisions.

11. Historical Average Tax Cost Per Employee
Tom
Total Includes: FUTA: $7,000 x 0.6% = $42 per employee. FICA: National Wage Index x 6.2% = Cost per employee. SUI: Average tax cost per employee. Tax cost does not take into consideration FUTA credit reductions associated with outstanding Title XII loans.

12. State Unemployment Insurance Rate Revisions
Tom hand to Rori

13. Some Reasons for SUI Rate Revisions
State errors in rate calculations
Legislative changes
Amendments to taxable wages
Historical benefit charge adjustments
Statutory elections
Voluntary Contributions
Joint Accounts
Other Rating Strategies
Transfers of experience (“TOE”)

14. Statutory Elections MapDC DE MA MD NH NJ PR RI VI VT AK WA OR CA NV AZ NM TX OK AR LA FL GA AL MS ID MT WY UT CO ND SD NE KS MN WI MI IA MO IL IN OH PA NC SC KY TN WV VA ME HI NY
Rori
VC (18 Jurisdictions)
JA (5 Jurisdictions)
Both VC and JA (5 Jurisdictions)
Not applicable (22 Jurisdictions)
VC, JA, and PVE (1 Jurisdiction)
VC and NWO (1 Jurisdiction)
VC, JA, and NWO (1 Jurisdiction)
Jurisdictions include 50 U.S. States, DC, PR, and VI
Joint Accounts (JA), Voluntary Contributions (VC), Negative Write-Offs (NWO), and Payroll Variations Elections (PVE)

15. Transfers of Experience (“TOE”)
Employers undergoing mergers, acquisitions, reorganizations, and divestitures may have the option or be required to transfer the experience between predecessor and successor:
Transfer: Movement of business operations (including employment), or portion thereof, from one legal entity to another, by any means; can involve asset-only or employee-only conveyances.
Experience: History of changes in the factors used in the development of a UI tax rate over a specified period, including benefit charges, taxable payroll, and taxes paid.
The TOE can positively OR negatively impact rates.
The effective date of the rate revision can vary.
States can sometimes take years to process a transfer.
Rori

16. Including Former Employer A
Rate Revision Example 1
Employer A is merging with and into Employer B.
The transaction is effective 1/1/2016.
The TOE is effective 1/1/2016 and is mandatory.
Before
After
Parent Co
Parent Co
Employer A
3.00%
Employer B
5.00%
Employer B
Rori
Employer A
Is Dissolved
Including Former Employer A

17. Rate Revision Example 1
The expected revised rate is 4.0%, effective 01/01/2016.
The merged entity should pay at the assigned rate of 5.0% while booking a receivable for the expected revised rate.
Upon issuance of the revised rate, the merged entity can apply the overpayment toward future tax contributions due or request a refund.
Rate Assignment
Taxable Payroll 2016
Rate
Cost
Original Rate for Employer B
$70,000,000
5.00%
$ 3,500,000
Revised Rate for Employer B
70,000,000
4.00%
2,800,000
Overpayment
$ ,000
Rori

18. Rate Revision Example 2
Employer A purchases assets and workforce of Employer B effective 1/1/2016.
Employer A creates NewCo and transfers all employees from Employer B to NewCo. The transaction is NOT reported to state.
NewCo rate is 2.70% while Employer B has a rate of 1.0%.
Before
After
Employer A
Employer A
Employer B
1.00%
Rori
NewCo 2.70%

19. Rate Revision Example 2
NewCo should request a TOE from Employer B resulting in a revised rate of 1.0%.
If NewCo and/or Employer B fail to report the transaction, and the state does not mandate the TOE, NewCo will significantly overpay SUI tax for 2016 and future years.
Company
Taxable Payroll 2016
Rate
Cost
NewCo at New Employer Rate
$30,000,000
2.70%
$ 810,000
NewCo at Transferred Rate
30,000,000
1.00%
300,000
Overpayment
$ 510,000

20. Mid-Year Wage Base Carryovers
Tom

21. Wage Base Carryovers – Federal
Wages paid by the predecessor can be used by a successor for purposes of the annual wage limitation (FICA and FUTA), if: 
The successor acquired property used in a trade or business, or a separate unit of a trade or business, of the predecessor;
Predecessor employees were employed by the successor immediately after the acquisition; and
The wages were paid during the calendar year in which the acquisition occurred and prior to the acquisition.1
“Use of assets” doctrine.2
1 IRC §§3121(a)(1) and 3306(b)(1) and Treas. Reg. §§ (a)(1)-1(b)(2) and (b)(1)-1(b)(2).
2 Revenue Rulings and

22. Wage Base Carryovers – State
Wages paid by the predecessor can typically be used by a successor for purposes of the annual wage limitation, if:
A transfer of a trade or business, or a portion thereof, occurred; and
Proper compliance documents have been filed and acknowledged by the state workforce agencies.1
Improper reporting of the transaction may cost the employer the ability to carryover wages for purposes of the annual SUI taxable wage base limits.
1 Pursuant to P.L , the SUTA Dumping Prevention Act of 2004 and related unemployment tax provision of each taxing jurisdictions. Each jurisdiction’s transfer of experience and
wage base carryover provisions should be reviewed to ensure ability to carryover the annual taxable wage base.

23. Mid-Year Wage Base Carryover Example
Employer A is merging with and into Employer B.
The transaction is effective 7/1/2016.
Of the 1,000 employees transferred, 900 employees make $50,000 per year and 100 make $150,000 per year.
Before
After
Parent Co
Parent Co
Tom
Employer A
Employer B
Employer B
Employer A
is Dissolved
Including Former Employer A

24. Mid-Year Wage Base Carryover Example
Type of Tax
Taxable Wage Base
Total Gross Wages (Predecessor)
Taxable Wages (Predecessor)
Total Gross Wages (Successor)
Taxable Wages (Successor)
Total Taxable Wages
Total Taxable Wage Base Limits
Overpaid Taxable Wages
# of EEs
Total Overpaid Taxable Wages
Tax Rate
Potential Overpayment
FUTA
$7,000
$25,000
$14,000
900
$6,300,000
0.60%
$37,800
7,000
75,000
14,000
100
700,000
4,200
FICA
118,500
25,000
50,000
6.20%
150,000
31,500
3,150,000
195,300
SUI
18,000
36,000
16,200,000
4.00%
648,000
1,800,000
72,000
Overpayment
$957,300
There is generally a 3 year statute of limitations to recover overpaid employment taxes.
Of the 1,000 employees transferred, 900 employees make $50,000 per year and 100 make $150,000 per year.

25. Multi-State SUI Sourcing
Tom hand to Rori

26. SUI Sourcing
In order to avoid duplicate taxation or coverage when an employee works for one employer in more than one state, the U.S. DOL mandated the incorporation of "localization of work" (a/k/a “SUI sourcing”) provisions into each state’s UI law.
All states have adopted a uniform set of statutory factors to determine where SUI wages should be sourced (i.e., reported). These “four factors”1 are applied in the order of priority presented below:
Localization of Services
Base of Operations
Place of Direction and Control
Residence
1 Pursuant to U.S. DOL Unemployment Insurance Program Letter (UIPL) , including Attachment 1, and related state unemployment insurance tax provisions.
Note: If the above four factors do not apply: a) Follow the laws of the states in which services are performed [perhaps under a provision for election of coverage]; or b) Participate in interstate reciprocal coverage agreements that allow employers to effectively choose the state of coverage.

27. Four-Factor Test
Localization of Services: Localization refers to the state in which a majority of services are performed.
Base of Operations: The state in which the employee maintains a base of operations and performs some service.
Rori

28. Four-Factor Test
Place of Direction and Control: The state from which the employee receives direction and control and performs some service.
Residence: The employee’s state of residency and performs some service.
Rori

29. SUI Sourcing Example 1
John Doe is a district manager responsible for territories in Alabama, Florida, Georgia, and South Carolina.
John maintains an office at his employer’s headquarters in Florida and does not have an office in any other state.
John’s employer reports his wages for SUI tax purposes to all four states.
Rori

30. SUI Sourcing Example 1 As Reported: State Gross Wages
Taxable Wage Base
Taxable Wages
Tax Rate
Tax Cost AL
$ 20,000
$ 8,000
4.50% $ FL
30,000
7,000
5.00%
350 GA
10,000
9,500
4.00%
380 SC
14,000
3.50%
$ 70,000 
$ 1,440
As Reported Using SUI Sourcing Rules:
$ 70,000
$ 7,000 $
Overpayment
$ 1,090
Rori

31. SUI Sourcing Example 2
Jan Doe is a sales manager responsible for territories in Alabama, Florida, Georgia, and South Carolina.
Jan has access to regional offices in each state.
Jan receives direction and control from Florida and South Carolina.
Jan’s home is located in Alabama.
Jan’s employer reports her wages for SUI tax purposes to all four states.
Rori

32. SUI Sourcing Example 2 As Reported: State Gross Wages
State
Gross Wages
Taxable Wage Base
Taxable Wages
Tax Rate
Tax Cost AL
$ 20,000
$ 8,000
6.00% $ FL
20,000
7,000
2.00%
140 GA
9,500
523 SC
14,000
4.00%
560
$ 80,000 
$ 1,703
As Reported Using SUI Sourcing Rules:
$ 80,000
Overpayment
$ 1,223
Rori

33. Out-of-State SUI Wage Credits
Tom

34. Out-of-State SUI Wage Credits
Employers often have a need to transfer or relocate employees from one taxing jurisdiction to another (e.g., a state-to-state transfer).
Many states allow employers to take credit for taxable wages paid to another state (except Louisiana, Minnesota, and Montana).
Requirements include:
Permanent change in the SUI sourcing state.
Transfer within the same legal entity.
Many states allow refund claims three to five years after the initial filing and payment of tax.
Tom

35. OOS Wage Credit Common Triggers
Headquarter move
Consolidation of locations
Post M&A integration
Expansion/Growth
New factory
New office facility
Employee movements
Promotions
Relocations
Other job changes
Telecommuting (work-from-home)
Implementation of policy
Revocation of policy
Tom

36. Out-of-State SUI Wage Credit Example
Effective 7/1/2016, 1,000 employees were relocated from the old headquarters in Florida to a new headquarters in New York.
Tax Cost (Without Using OOS Wage Credits):
Original State
Wage Base
New State
Credit From Prior State
Wage Base Remaining
Tax Rate
Tax Cost
# of Employees
Total Tax Cost FL
$7,000 NY
$10,700 $
5.00%
$535
1,000
$535,000
Tax Cost (Using OOS Wage Credits):
$3,700
$185
$185,000
Overpayment
$350,000
Tom

37. Credits on Account
Tom to Rori

38. Credits on Account – Why They Might Occur
Rate Revision
Transfer of Experience
Retroactive rate revisions
Improper Rate entry into system
Clerical errors
Delays in proper rate receipt
Payment made to incorrect account
Overpayment of non-SUI taxes (such as income tax withholding and disability insurance)
Rori

39. Credits on Account – Ways to Identify
Call the state workforce agencies (power of attorney may be verified).
Verify employer account standing on state workforce agency websites (user name and password will be needed).
Review documents from state (rate notices, blank QCRs, etc.) and third party vendors for notices of credits or opportunity to apply for credits.
Rori

40. Credits on Account – Ways to Recover
Identify state refund method for overpayments.
Notify your payroll tax group or third-party payroll tax filer to apply the credit to current or future tax liabilities.
Send a letter requesting a refund.
Fill out state-specific application for refund.
Rori

41. Other Opportunities
Tom

42. Michigan Unemployment Tax Credit
Michigan offered a tax credit for 2009, 2010, and 2011 to offset the FUTA tax increases of 0.3% in 2009, 0.6% in 2010, and 0.9% in
2009: Maximum $21 per employee
2010: Maximum $42 per employee
2011: Maximum $63 per employee
Generally, the amount of the credit is 50% of the additional FUTA tax paid by the employer.
Employers with a positive account balance in operation for five or more years prior to the credit year, subject to additional requirements, can receive the tax credit.
Tom

43. Summary
Tom

44. Summary Three Main Employment Taxes – FICA, FUTA, and SUI
Rate Revisions – Pay at assigned rate, accrue at revised rate
Mid-Year Wage Base Carryover – Most transactions qualify
Meet Compliance Requirements for SUI
Must File for a Refund
Multi-State SUI Sourcing – Report employees to proper state
Out-of-State SUI Wage Credits – Take advantage of credits
Credits on Account – Identify, review, and recover
Statute of Limitations – Typically three years (some are five/six)
Stay Informed –
Tom

45. Questions and Answers
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