Small Business Questions & Answers


Filed under Managing Your Taxes

Ask About Unemployment Taxes -- Part 2

by Edgy Encore | May 20, 2012

Subject :Taxes

Dear Toolkit,

Thanks for your helpful info about unemployment taxes: FUTA and SUTA. See—I've even caught on to the jargon! But now that I know what they are, what can I do to minimize my actual tax costs? I own a restaurant and am therefore bound to have higher turnover than most businesses. Help!


Edgy Encore

Dear Edgy Encore,

You may recall from Part 1 that the states use experience-rating systems "to assign lower unemployment tax rates to employers whose workers suffer the least involuntary unemployment and higher rates to employers whose workers suffer the most involuntary unemployment." In other words, the fewer successful claims for unemployment benefits that your former employees file, the lower your taxes will be.

Well, to keep your tax costs to a minimum, you must keep this experience rate as low as possible by vigorously contesting unjustified claims.

You have every right to contest a former employee's eligibility for unemployment benefits. Even if you lay off an employee because you don't have enough work for him, and even if he meets all the usual requirements (such as having been employed the minimum length of time; being ready, willing and able to take another job; etc.), and has completed all the eligibility requirements of the local unemployment office, you can still contest his claim. (In this instance, you wouldn't want to, however, as the employee is clearly eligible and would be awarded benefits by the hearing officer anyway.)

But you should make it a policy to routinely contest all questionable or borderline claims. When an employee files an unemployment claim form, he states why he is unemployed and the last date he worked for you. The state will send you a copy of this form, asking you to confirm or deny the employee's statements, provide further information, and return the form to them within a specific period--usually a week. Don't miss this deadline! (Click on this map page to learn where to find your local unemployment office if you need further details.)

You can question the employee's eligibility on any number of factors. The one most often used is to challenge the individual's "active search for work." There are a number of other disqualification factors. Just state the facts clearly and briefly, and return the form promptly.

An administrative hearing will be scheduled and you'll be notified. Get there! (Or see that someone represents you there. You can easily find a local service firm that specializes in unemployment claim protests to routinely handle these for you if your turnover grows too big for you to spare the time to do it yourself.) If you lose at the hearing and are convinced you're in the right, don't be afraid to appeal the decision.

You won't win them all, but in making the effort you will minimize your tax costs. .