If you were floored when your business received its 2021 unemployment tax rate notice back in December from the Washington Employment Security Department (WA ESD), you’re not alone. Rates skyrocketed. Some businesses’ tax rates went up nearly one full percent, even if they had never had an unemployment claim. One of our clients, with no prior claims, saw an increase of SIXTY PERCENT over their prior year’s tax. The good news is, you can expect to see a little relief in your mailbox soon, if you haven’t already.
WA SUI Basics
First, a bit of background. Your WA ESD rate notice includes two tax rates. The first is your State Unemployment Insurance, or SUI, rate. The second is an Employment Administrative Fund, or EAF, rate. The EAF rate is always either .02% or .03%, and it gets added to your SUI rate for your total rate. In this article, we’ll be focusing on just the SUI rate.
Now let’s break down that SUI rate. It’s made up of three sub-rates, and they are:
- Flat Social Tax. This rate is the same for all employers in Washington. It was .25% in 2020, and by law was slated to jump up to 1.22% in 2021. The only reason it stayed as low as it did is because the legislature capped it back in 2010 – otherwise, it could have jumped even higher. (Your initial rate notice may show .81% in for this rate in 2021, not 1.22%, thank goodness. This is because of how the statute backs out some numbers.)
- Experience Rating Tax. This tax is different for all employers. The calculation takes into account an employer’s unemployment history, and then assigns a tax based on tables laid out by the legislature. There are 40 categories of tax rates based on an employer’s unemployment history, and those taxes range from 0% to 5.4%. Needless to say, after the high unemployment of 2020, and even though certain time periods weren’t counted against employers, many employers’ rates jumped up.
- Solvency Surcharge. This tax only applies if the state’s unemployment insurance (UI) fund becomes insolvent (as defined by statute), and it’s an extra tax designed to rebuild the state’s coffers. Employers haven’t paid this surcharge in years, so it went from 0% in 2020 to the state max of .2% in 2021. Luckily, the state did not add this tax to the first round of 2021 rate notices that went out, so employers didn’t have to factor this surcharge into their sticker shock.
So what this all means is, even if I have a perfectly clean unemployment record, and factoring in the state’s grace in NOT adding the insolvency surcharge, employers’ UI rates went up significantly.
And now to the revised notices…
If we and the UI system in general haven’t confused you enough already, you should have received a revised 2021 UI rate notice. (If you haven’t, contact ESD at the email below. For more confusing fun, the notice doesn’t say it’s revised, so you’ll only know by the February 2021 date on the notice.) On February 8, the state enacted legislation that did a few things to lower the 2021 rates (even though they’re still generally higher than 2020). That legislation included:
- Capping the flat social tax rate at .50% in 2021 instead of 1.22%.
- Making more modest increases to the flat social tax rate cap through 2025, up to a maximum of .9%.
- Suspending the solvency surcharge through 2025.
- Implementing other rules to reduce employers’ experience rating tax.
A good summary of the changes in the February 8 legislation can be found here.
So, that is why many businesses are receiving revised 2021 SUI rates – the February 8 legislation lowered all the tax rates that make up the overall SUI rate. That legislation was backdated to January 1, 2021, so ESD had to send out revised notices in January.
If you have received your revised 2021 rate notice, be sure to get that to your accountant or payroll provider to make sure your tax calculations remain correct. If you haven’t yet received your revised 2021 rate notice, contact ESD at vog.aw.dse@sutats.
Payroll can be complicated for small businesses, and become a huge administrative burden. We recommend outsourcing your payroll to a competent, reliable, and simple to use payroll provider. Our favorite for this is Gusto (affiliate link).
Do you have questions about your tax reporting requirements? Books a call with one of our experienced attorneys today to get your questions answered.
