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Flip the Script: Opting Out of Unemployment Taxes

Tuesday, October 16, 2018

Authored by Tom Kallai,  Sales Executive for Horton’s Risk Advisory Solutions

If your non-profit is a Human Service Agency in the state of Illinois, it was certainly affected by a budget impasse that brought integral financial support to a screeching halt.

Agencies were not only forced to cut programs, but also their staff. Although Illinois has a budget, payments are still slow to arrive. Waiting on support seems to be woven into the relationship between the Illinois legislature and Illinois Human Service Agencies, but what if there was a way to flip this relationship? What if there was a way to keep some of the money from the state? There is a way.

In Illinois, non-profit agencies can opt out of paying unemployment taxes. The agreement comes with the understanding that any of the agencies’ actual unemployment claims, which are paid out by the state, will be reimbursed dollar for dollar by the agency.  With a large number of DSP and Administration positions that are left vacant because employees leave voluntarily for opportunities elsewhere, Human Service agencies’ unemployment claims are often far lower than the imposed unemployment tax.  Some agencies have seen the cost allocated to unemployment decrease by as much as 40%.

While opting out of unemployment taxes can make a substantial and positive impact on costs, any agency should undergo a thorough assessment of their unemployment claim history before jumping in (or out).  Additionally, agencies with historically low unemployment claims face the risk of an outlier year of high unemployment claims, which they must then pay back to the state – dollar for dollar. To bridge that potential financial gap, insurers like AmTrust Financial and Great American have developed bond and insurance programs to make sure opting out of state unemployment tax remains a financially positive strategy. Additionally, these carriers can support agencies by helping them fight false unemployment claims.

If your agency is still paying taxes to the state for unemployment claims that it is not incurring, take the time to review your tax spend and claim history with trusted advisors. Find out if you can flip the script, and keep the state waiting on your money.  The deadline to switch from Illinois Unemployment Tax Contribution to Reimbursement is January 1st.

Please reach out to Tom Kallai if you have any questions. 

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.