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Video instructions and help with filling out and completing Can 940 Schedule Reduction Rates

Instructions and Help about Can 940 Schedule Reduction Rates

All right, I think we're going to go ahead and get started. I appreciate everybody participating this morning, or should I say, this afternoon. We thought it would be a good idea to explain some terminology and how to get your unemployment tax rate since this is about the time employers start receiving their rates for the next calendar year. We have some friends on the line from school districts and such, so I'll explain a bit about the reimbursable status, as this is how you pay your unemployment tax as well. Okay, let's get started. Here are some UI tax rate basics. There are two basic types of Merit Systems - the reserve account method and the benefit cost method. The reserve account method is based on the ratio of the employer's reserve account balance to the average taxable payroll. Employers pay into a reserve account each quarter based on their payroll tax, and the balance is determined by contributions less benefits paid. This balance is then applied to the average taxable payroll figure, which changes every year during the calculation period of your UI tax. This determines your unemployment tax rate. This method helps avoid drastic rate fluctuations and can withstand a few claims without significantly impacting the rate. The other method is the benefit cost method, which is based on the ratio of the employer's assessed benefit charges to the average taxable payroll. This method is more volatile and directly tied to the amount of benefit charges received in a fiscal year. States like Texas, Oklahoma, Kansas, Missouri, Pennsylvania, and others use this method. There is no reserve balance to balance out the rate, so if you have a bad year with high benefit charges and a relatively unchanged taxable payroll, your unemployment rate can be highly affected. When calculating...