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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 and get started I appreciate everybody participating this morning first afternoon I should say we thought around since this is about the time that employers start receiving their unemployment tax rates for the next calendar year it might be a good thing to go ahead and explain some you know terminology and explain how you get your unemployment tax rate there is some of our friends on the line here are actually from the school districts and stuff like that I'll explain a little bit about the reimbursable status as since that is how you pay your unemployment tax as well so the get started here here are some UI tax rate basics okay and there are two basic types of Merit Systems and that is the merit system meaning these are the types of unemployment accounts that pay the quarterly payroll tax and the two basic types of systems are one is the Reserve account method and that is a trait that is based on a ratio of the employers reserve account balance divided by an average taxable payroll when the employers pay their quarterly payroll tax for sudha they pay into a reserve account and that is a balance that they maintain year in and year out that balance is based on contributions less any benefits paid and that is what determines your account balance okay so the then that account balance is applied to an average taxable payroll figure that changes every year during the calculation period of your of your UI tax and that determines a ratio and that ratio is what determines your unemployment tax rate this method tends to avoid massive swings and rates because if you're talking about an account balance that it grows and shrinks depending upon how the how you do it and then preventing them being assessed as well as what is your contributions your contributions and and your tax your claim amounts are low then that tends to keep everything at a low at a low unemployment rate it also can withstand if you have a year where you have a couple of claims that go against you for some reason layoff or something like that it won't completely tank your unemployment rate that like some of the other methods can the other method is called a benefit cost method and this is a tax rate that's based on your ratio of the employers assessed benefit charges baht divided by that average taxable payroll okay so this is a much more volatile system it is directly tied to the amount of benefit charges that you can have that in any given year so Texas and Oklahoma for example are examples of this type of system Kansas Missouri Pennsylvania other states like that those are examples of the the type of unemployment the reserve account method that I was describing earlier since these are tied directly to the amount of benefit charges that you receive in any given fiscal year and you can these can be a little bit more volatile because there's no Reserve balance to distill it down so if you have a really bad year and your taxable payroll remains basically the same because remember there's always a lag in the calculation if the calculations are based on a fiscal year most fiscal years in on June 30th and the new fiscal year begins on July 1st so when you're calculating your unemployment tax rate you're you're looking at all all the experience that occurs in the second half with the previous calendar year and the first half of the current calendar year so what happens in the second half of that calendar year 2022 for example has no bearing on your unemployment tax rate for 2022 so there's a lag involved in that so if you have a real bad first half of that of that cycle and you're still maintaining the relatively you still have that three-year average that's playing into it you could have a real volatile unemployment rate based on the the benefit cost method while the tax calculations are based on a fiscal year and the fiscal year varies a little bit from state to state but most of them run from July 1 to June 30th fiscal year your actual tax rate and the actual contributions that you make towards that that your sudha account are based on the calendar year so as I was describing earlier for your 2022 rate it was the experience in the second half of 16 in the first six months of 2022 and that is what determines your unemployment rate for 2022 ok so there's just that lag in there but most people don't realize that takes place but that that is how they determine that now there's some fun basic terminology that you need to understand in order to really truly understand and how the calculation works taxable payroll and this is one of the fundamental elements of the finance system that everybody uses and this is the wage based threshold is determined by the state the safer we'll use Missouri as an example the threshold wage based in Missouri is $13,000 once you have paid all of that employee $13,000 in gross earnings you no longer have to pay unemployment tax on that person any longer and that is the figure whatever figure that is per employee whether it be the $13,000 wage base or it could be a thousand dollars that is what is rolled up to determine your taxable payroll okay that average number that they use to calculate your unemployment tax rate can range from a three to five year average depending on what state your Centuria for the purposes of Missouri to use the example consistently Missouri is a three year average so as Kansas okay most states are a three-year average there's a few out there that run on.

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