Controlling UC Costs for Contributory Employers
The statements in this document are a paraphrase of the applicable law and are not legally binding. The reader is cautioned to obtain the advice and guidance of a professional familiar with the Pennsylvania Unemployment Compensation Law.
INITIAL ACTIONS TO PAY THE LOWEST POSSIBLE UC TAX
THE ENTITY TYPE OF THE BUSINESS WILL AFFECT WHETHER CERTAIN EMPLOYEE WAGES ARE TAXABLE.
There are four basic types of business entities, each of which has different reporting obligations under the Pennsylvania UC Law. Any other entity type should contact the local Field Accounting Service office about UC tax questions.
Sole Proprietorship: Wages paid to a sole proprietor, his or her spouse, parent(s), stepparent(s), children and stepchildren under the age of 18 are not subject to UC taxes. Anyone else who receives wages is an employee and their wages are taxable for UC purposes.
Partnership: Wages paid to general partners are not subject to UC taxes. Anyone else who receives wages is an employee and their wages are taxable unless an exempt employee's relationship applies to all partners, e.g., if two brothers form a partnership, any wages paid to their father would be not taxable. A child's wages would be taxable unless they are the child of both partners.
Corporation: There are no exceptions or excluded wages in a corporation. Anyone who receives wages is an employee and their wages are taxable.
Limited Liability Companies (LLC): A single member LLC or RPC will be treated as a sole proprietorship and multi-member LLC or RPC will be treated as a partnership for Pennsylvania UC Tax purposes, unless they have elected to be treated as a corporation for federal tax purposes. In order to be treated as a corporation the LLC or RPC must file an election with the Internal Revenue Service on Federal Form 8832. LLCs generally are not required to file Form 8832. They only need to file Form 8832 with the IRS if they want a status for federal tax purposes that is different than the default status.
||FEDERAL FORM 8832 FILED
||FOR FEDERAL PURPOSES, THE LLC IS TAXED AS:
||MEMBERS COVERED / EXEMPT FOR UC|
||Sole Proprietor (Default Rule)
||Form 1040, Schedule C, E, F
||Exempt under the 4(l)(2)(B) [commonly referred to as the a/b test]|
||Form 1120, 1120S
||Covered under 4(l)(6) [commonly referred to as the catch all-clause]|
||Partnership (Default Rule)
||Exempt under the 4(l)(2)(B) [commonly referred to as the a/b test]|
||Form 1120, 1120S
||Covered under 4(l)(6) [commonly referred to as the catch-all clause]|
CERTAIN WAGES ARE NOT TAXABLE REGARDLESS OF BUSINESS ENTITY TYPE AND SHOULD NOT BE REPORTED OR INCLUDED IN THE SELF-ASSESSMENT OF UC TAX LIABILITY.
The UC Law does not cover certain types of employment. The wages paid for these services are exempt from UC taxes. Employers do not need to report the payment of wages for services that are not covered by the UC Law, and do not need to pay taxes on these wages.
Domestic Employment: Services in a private home, local college clubs, fraternities or sororities is not covered employment, unless $1,000 or more in wages are paid in any quarter of the current year or preceding calendar year.
Example: If quarterly wages are paid to a domestic as follows:
UC liability would be created in the 3rd quarter of 2001, because $1,000 or more in wages were paid in that quarter. However, UC liability would be retroactive to the beginning of the 2001 calendar year and the employer will be liable for UC taxes in the 1st and 2nd quarters of 2001 because wages were paid in those quarters. Liability for UC taxes continues into calendar year 2002, even though the wages paid are less than $1000 in each quarter.
Liability in calendar year 2003 will depend on whether $1,000 or more in wages were paid to domestic employees in any calendar quarter in 2003.
Agricultural Labor: Services performed by agricultural employees are not covered employment, unless the business entity:
- employs at least 10 full or part-time employees in 20 or more calendar weeks, whether or not the weeks are consecutive, in the current or preceding calendar year; or
- pays $20,000 in wages in any calendar quarter of the current or preceding calendar year.
Church Employees: Services for a church, an association of churches, or an organization operated primarily for religious purposes, including the services of a duly ordained, commissioned or licensed minister, are not covered employment for UC tax purposes.
Casual Labor: Services performed outside the course of an enterprise's trade or business are not covered employment unless cash wages of $50 or more are paid, and the services are performed by individuals who are regularly employed by the enterprise to perform these services
Miscellaneous: Services performed by Insurance Agents, Real Estate Salesmen, Investment Agents and Direct Sellers that are compensated solely by commission are not covered employment for UC tax purposes. A Direct Seller is a person engaged in the sale of consumer products in the buyer's home and does not otherwise have a permanent retail establishment.
THE PREDECESSOR MAY HAVE A LOW UC TAX RATE THAT IS VOLUNTARILY TRANSFERABLE TO THE SUCCESSOR'S BENEFIT.
Any employer who receives the organization, trade or business of its predecessor and continues essentially the same business activity, may apply for the predecessor's employment experience and reserve account balance at any time prior to December 31 of the year following the transfer, but only if the preceding employer joins in the application. A transfer of employment experience may be beneficial if the predecessor has a low UC Tax Rate and it is unlikely that future benefit charges will be allocated to the predecessor's account. If the predecessor receives additional benefit charges after the transfer is processed, those benefit charges will be passed to the successor, and may cause the successor's tax rate to increase in future years. A voluntary application for transfer of employment experience is final and binding once approved by the Office of UC Tax Services (UCTS).
CAUTION: THE PREDECESSOR MAY HAVE OUTSTANDING TAX LIABILITIES THAT ARE INVOLUNTARILY TRANSFERABLE TO THE SUCCESSOR'S DETRIMENT.
When a buyer purchases 51% or more of an employer's assets, including but not limited to any stock of goods, fixtures, machinery, equipment, realty or contract rights, the buyer may demand from the seller a bulk-sale certificate that all UC reports and all UC tax liabilities due have been paid by the seller to the date of the proposed transfer. The failure of the buyer to require such UC tax certificate will make the buyer liable for any unpaid UC tax liabilities owed by the seller. The continued nonpayment of these liabilities by the buyer will result in a delinquency rate imposed on the buyer in subsequent calendar years.
TIMELY COMPLIANCE TO REDUCE COSTS
DELINQUENCIES DUE TO UNTIMELY PAYMENT OF TAX LIABILITIES OR DUE TO THE MISCALCULATION OF TAX LIABILITIES WILL RESULT IN A HIGHER TAX RATE IN SUCCESSIVE YEARS.
Taxable Wage Base: Employers self-assess their own UC taxes and withhold from wages any employee contributions payable. Employee contributions, when applicable, are calculated by multiplying the assigned UC Tax Rate by the amount of wages paid to each employee during that quarter. Employer contributions are calculated by multiplying the assigned UC Tax Rate by the amount of wages paid to each employee during that quarter.
The following chart lists the taxable wage base and state adjustment factor amounts beginning 2013:
||Taxable Wage Base for Employer Contributions (per employee per year)
||Maximum State Adjustment Factor|
|2018 and thereafter
Wages include salary, commissions, bonus, tips, sick or accident disability payments (except workers' compensation payments) made by an employer or third party (insurance company) and certain fringe benefits.
Tax Rate: UC Tax Rate Notices are mailed during the fourth quarter of the year preceding the year to which the rate applies. It is important that the notice be promptly forwarded to the staff responsible for completing the UC Quarterly Tax Reports. An underpayment of UC taxes will result in a delinquency that accrues interest and could increase the next year's tax rate. An overpayment will result in a tax credit or refund that will deprive the employer the current use of cash assets until the overpayment has been discovered and corrected.
Respond to all documents and inquiries and raise disputes in a timely manner. Keep the department informed when addresses and phone numbers change so there is no interruption in communications.
FAILURE TO FILE TAX RETURNS ON THE CORRECT FORM WHEN DUE MAY CAUSE PENALTIES TO BE ASSESSED AND INCREASE UC COSTS.
Late Filing Interest and Penalty: The easiest way to control costs is to file UC Tax Reports and to pay UC Taxes when they are due.
Interest charges on delinquent contributions and penalty charges on delinquent reports are separate and distinct. If you are unable to pay a quarterly report in full on the due date, you can avoid penalty charges if the report is filed on time. An employer who fails to file its UC Quarterly Tax Report when due must pay a penalty of 10% of the total amount of contributions due, with a minimum of $25 and a maximum of $250.
Interest charges will continue to accrue on any unpaid contributions balance until it is paid in full.The interest rate is set annually by the Secretary of Revenue, unless it is less than the 9% minimum established by Act 5 of 2005.
Filing Penalty: Effective with the first quarter 2014 filing, employers are required to electronically file quarterly UC tax and wage reports through the Unemployment Compensation Management System (UCMS).
To access UCMS from the Labor & Industry homepage, click the UCMS icon. You can also type www.paucemployers.state.pa.us
into your browser. Step-by-step registration and filing videos and tutorials are located on the "Employers" tab of www.uc.pa.gov
Dishonored Check Penalty: A penalty is charged to anyone who provides a check or payment by electronic transfer to the Department of Labor & Industry that is subsequently dishonored by the bank upon which it is drawn. The check penalty will be 10 percent of the face value of the check, up to a maximum of $1,000, with a minimum of $25 per occurrence.
FAILURE TO USE ALL CREDITS DUE MAY UNNECESSARILY INCREASE UC COSTS.
FUTA Tax Credit
: Payment of state UC taxes when due will maximize the employer's Federal Unemployment Tax (FUTA) credit on its federal tax returns. If an employer pays its state UC taxes for prior years on or before January, it is entitled to a credit of 5.4% against the FUTA tax, which is usually 6.0% of the first $7,000 of each employee's annual wages. Any questions about FUTA should be addressed to the Internal Revenue Service.
MEASURES TO REDUCE A HIGH UC TAX RATE
TIMELY APPEALS MAY RESULT IN A REDUCED UC TAX RATE.
Appeal of an Assigned Rate: Every employer providing employment subject to UC tax is issued a UC Tax Rate Notice that assigns a tax rate for the calendar year. If the employer disputes the assigned rate, it may file a written appeal for review and re-determination of the assigned rate within 90 days from the mailing date of the rate notice. The letter must contain specific factual statements showing the reasons the rate is incorrect.
Appeal of a Delinquent Rate: Any employer who has not filed all registration reports required by the department, has not filed all the quarterly tax reports due or has not paid all taxes due by a specific date will be assigned a delinquent rate for the next calendar year that is 3% higher than the rate they would otherwise be assigned.
An employer may have a delinquency rate removed by filing a rate appeal for review and redetermination of the delinquency rate within 90 days from the mailing date of the rate notice and correcting the reason(s) for the delinquency rate. If the delinquency rate is based on missing registration reports, all registration reports and quarterly tax reports must be submitted and all underpayments must either be paid in full or a payment plan must be approved before the delinquency rate will be revised. If the delinquency rate is based on missing quarterly tax reports, all quarterly reports must be filed and paid or a payment plan must be approved before the delinquency rate will be revised. If the delinquency rate is based on an underpayment of UC tax, the employer must either pay in full or enter into an approved payment plan before the delinquency rate will be revised. If a payment plan has been approved, the employer must make all periodic payments as agreed upon and timely file all subsequent quarterly reports with payment in full of the tax due beginning with the next quarterly report. If the employer defaults on an approved payment plan, the delinquency rate will be retroactively reinstated.
A VOLUNTARY CONTRIBUTION TO THE EMPLOYER'S RESERVE ACCOUNT MAY RESULT IN A REDUCED UC TAX RATE.
An employer, at any time, may Voluntarily Contribute to the UC Fund an amount in excess of the tax due. The Voluntary Contribution will be credited to the employer's reserve account balance and will be included in the computation of the UC Tax Rate for subsequent years. However, if the Voluntary Contribution is filed within 30 days from the date of the rate notice, but in no case later than 120 calendar days from the beginning of the calendar year, whichever is sooner, the employer may request a recalculation of its UC Tax Rate. All Voluntary Contributions should be accompanied by a letter of explanation and mailed to the department. A Voluntary Contribution is not revocable, will not be refunded and cannot be used as a credit for subsequent tax due in the event the employer changes its mind.
A Voluntary Contribution may reduce the Reserve Ratio Factor, one of the six components of an employer's UC Tax Rate. A Voluntary Contribution may not be cost effective when the amount needed to increase the Reserve Account Balance is more than the savings realized on the annual UC contributions due at the current UC Tax Rate.
A REQUEST FOR ADJUSTMENT OF A DEBIT RESERVE BALANCE MAY RESULT IN A REDUCED UC TAX RATE.
A higher UC Tax Rate is assigned when an employer's reserve account has a negative balance. If the benefits charged to an employer's reserve account exceed the amount of credits to the employer's reserve account by an amount which is more than 20% of the employer's annual payroll, the employer may elect to have its reserve account downwardly adjusted to a negative balance equal to 20% of its annual payroll. Upon election, an employer's Debit Reserve Account Balance will be adjusted to a negative 20% of the annual taxable payroll and the maximum experience rate will be assigned for the current and the following two calendar years. This could result in a lower rate in subsequent years if benefit charges are negligible during the three years that the election is in effect.
The request for adjustment must be made in writing after January 1 but not later than April 30 of the tax year in question. The request is not revocable after ten days from the postmark date.
CONTROL BENEFIT COSTS TO REDUCE FUTURE UC TAX RATES
TIMELY APPEAL FROM FINANCIAL DETERMINATIONS WILL PROVIDE AN OPPORTUNITY FOR ALL DISPUTES TO BE HEARD.
Form UC-44F(3), "Notice of Financial Determination," establishes the financial eligibility of a claimant for UC benefits based on the employee's highest quarterly wages, total base-year wages, and credit weeks reported by all employers during the base-year period.
Either a base-year employer or the claimant may file an appeal from a financial determination. A Notice of Financial Determination must be appealed within 15 days of the mailing date shown on the determination. The manner in which an appeal may be filed is stated on the Form UC-44F(3).
If an appeal is timely filed, a UC referee will issue a decision. The referee's decision may be appealed further to the UC Board of Review. Complete instructions for filing appeals are sent with each determination or decision. Contact the bureau office listed on the determination for further information.
TIMELY REQUESTS FOR RELIEF FROM CHARGES WILL PREVENT UNNECESSARY REDUCTIONS IN THE EMPLOYER'S RESERVE ACCOUNT.
All benefits paid to UC claimants are charged to the reserve account balance of employers who paid wages to the claimant during the base year that establishes eligibility for the UC claim. An employer's reserve account balance is only debited for its allocated share of the benefits paid to the claimant. Under certain circumstances, an employer is granted relief from the benefit charges. An employer should request relief from benefit charges whenever the employee was terminated for wilful misconduct or when the employee voluntarily quit for reasons not attributable to the work.
When the service center requests separation information for a claimant in order to issue a determination of eligibility, employers should provide detailed pertinent information, specific to the final incident causing the separation regardless of if the employer is a current base year employer or a separating employer. In many instances, employer relief from charges will be determined by the UC Service Center determination.
A separating employer is a potential future base year employer and could be denied relief from charges on subsequent claim when the discharge is determined not to be for willful misconduct connected to the work. The same applies if the individual left that work with good cause attributable to that employment.
Because a former employee may file more than one application for benefits and may qualify for benefits based on post-separation events, an employer should request relief from charges each time the employer gets notice that the former employee reapplies for UC benefits, even if the employer is not the most recent separating employer. A part-time employer may request relief from charges for benefits paid to a claimant who has been laid off by another employer, if the claimant's part-time work for that employer continues without material change.
Relief from UC benefit charges may also be available if the claimant is unemployed due to a disaster, as defined by the UC Law.
An employer will receive Form UC-44FR, "Request for Relief from Charges," when a claimant files an application for UC benefits. The claimant's base-year employers must file a timely request for relief from charges within 15 days from the date of determination of the claimant's eligibility. A subsequent separation from a base-year employer for whom the claimant worked during the base-year, may request relief from charges within 15 days after the employee was separated from that subsequent separation. If these deadlines are missed, a late request for relief from charges may still be filed, but will be effective 15 days after the postmark/FAX date of the relief from charge request.
An approval for relief from charges will not stop the payment of benefits to the claimant, but the benefits will not be charged against the employer's reserve account.
A request for relief from charges must be made in writing to the Employers' Charge Section, PO Box 67504, Harrisburg PA 17106-7504.
TIMELY NOTICE OF DISCREPANCIES ON FORM UC-640 WILL PREVENT INAPPROPRIATE CHARGES IN THE EMPLOYER'S RESERVE ACCOUNT.
Each employer is notified of benefit payments to former employees on Form UC-640, "Monthly Notice of Compensation Charged." Form UC-640 indicates the amount of the weekly benefits paid to the claimant, the percentage charged to the employer, and the amount charged to the employer's reserve account. Form UC-640 is also used to notify employers of credits or debits issued to its reserve accounts when relief from charges is granted, or when an adjustment is made to its reserve account (e.g., overpayment of benefits, supplemental payment, etc.).
The employer should review Form UC-640 to ensure that the listed claimants are former employees. Any discrepancies should be reported to the Wage Record Section at 717-783-3829. In addition, the employer should review the Form UC-640 for proper payment of benefits when wages are involved as outlined on the form. Any discrepancies should be reported to the UC Service Center at 866-223-4718.
UC Tax Questions
A wide variety of information regarding the UC program is available to you on our website at www.dli.state.pa.us, particularly in the Frequently Asked Questions section. For answers to general employer-related UC Tax questions, or if you have questions not covered by the information available in this pamphlet, you may call our UC Employer Contact Center at 866-403-6163 or, if within the Harrisburg area, at 717-787-7679, from 8 a.m. to 4:30 p.m., Monday through Friday. You may also email us at firstname.lastname@example.org
To ensure proper handling of your inquiry, please be prepared to provide the name of your business and your PA UC account number.
UC Benefit Charges Questions
You may email Employer Services at UIEMPCHARGE@pa.gov
and include your employer account number, the claimant's full name and the last four digits of the social security number and the nature of your question. Or, you may call us at 717-787-4677 from 8 a.m. to 4 p.m., Monday through Friday, or address correspondence to:
7th Floor, Labor & Industry Building
651 Boas Street
Harrisburg, PA 17121