STATE AND LOCAL TAXATION

New York State Overhauls Unemployment Tax Law

By Adam Lambert and
David Germain

Two pieces of legislation regarding state unemployment tax law changes were recently enacted in New York, effective for 1998 and 1999. The first bill, Senate Bill 7817, contains numerous changes to the state unemployment tax law, while the other, S 5548-B and A 11072-B, consolidates employer withholding tax, unemployment insurance, and wage reporting filing and payment responsibilities and was highlighted in the November 1998 issue of The CPA Journal.

The changes in Senate Bill 7817 relate to the way tax rates are calculated, the amount of wages subject to unemployment tax, and the amount of weekly unemployment benefits a claimant can collect, as well as tax rate schedule changes. Some of the more important changes are noted below:

Taxable Wage Base Increase. For 1999, employers will be required to pay unemployment contributions on the first $8,500 of wages met per employee. This is an increase from the current taxable wage base of $7,000 per employee.

New Unemployment Tax Rate Schedules. The state has established 12 new tax rate schedules with the maximum rate increasing from its current maximum of 5.40% (not considering supplemental or subsidiary taxes). The minimum tax rate remains zero percent. Currently, there are seven tax rate schedules. The tax rate schedule used by the state is determined by the size of the general fund (i.e., as the fund increases, a more favorable tax rate schedule is used).

However, the state has not finalized the tax rate schedule for 1999. Once the size of fund index is determined, the state will assign a tax rate schedule for the base unemployment tax rate and a schedule for determining the subsidiary tax. The supplemental tax of 0.70% will not be in effect for 1999.

New Employer Tax Rate Change. For 1999, the new employer rate will be the maximum positive tax rate based on the tax rate schedule in effect, but cannot be greater than 3.40%. This tax rate must also be assigned a subsidiary tax. Currently, a new employer is assigned a tax rate of 2.70%, with various additional rates added to it (i.e., 1.0% subsidiary tax rate for 1998).

Increase in Maximum Weekly Unemployment Benefit Amount. The maximum weekly benefit amount has increased to $365. The current maximum weekly benefit amount is $300.

Change in Base Period Used to Determine Unemployment Claims. Effective April 1 the base period to calculate unemployment benefits is the first four of the last five completed calendar quarters. The base period for unemployment claims currently is 52 consecutive weeks. The base period is defined as the period of employment used to determine a former employee's (i.e., claimant's) weekly benefit amount.

Change in Unemployment Tax Rate Calculation. The average taxable payroll used in the unemployment tax rate calculation will increase to five years. Currently, a three-year average is used in calculating an employer's reserve ratio. This ratio is then applied to the prescribed tax rate schedule to determine the employer's tax rate.

Provisions Applicable for Negative Balanced Employers Only. If, on the calculation date, an employer's account balance is negative in the amount of 21% or more of the current fiscal year's taxable payroll, a penalty rate equal to the maximum tax rate allowed for such year will be assigned for three consecutive years. The current general account transfer is calculated based on a negative balance of two percent or more of the current fiscal year taxable payroll.

Please note that employers already assigned tax rates based on prior general account transfers because of a negative account balance of two percent or more, and whose current reserve balance as of December 31, 1998, is not more than 21% negative, could receive the maximum tax rate allowed for such year, or a tax rate not lower than 6.10%.

Furthermore, employers with a negative account balance will have their account percentage improved by up to four percentage points if their current fiscal year taxable payroll is 80% or more than the three year average taxable payroll. However, this adjustment cannot reduce an employer's tax rate to less than 6.10%.

Favorable Tax Rates for New Employers with Favorable Unemployment Experience. If an employer is liable for less than 21 quarters (i.e., deemed a new employer by the state for unemployment tax purposes), the tax rate will be calculated using an equalization factor. The current tax rate is calculated based on fewer than 13 quarters of liability.

Change in Calculation of Subsidiary Contribution Tax Rate. Effective 1999, the subsidiary contribution is calculated based on a sliding scale. Similar to the 12 new tax rate schedules, this tax is based on the employer's reserve ratio, and is applied to one of 11 subsidiary contribution schedules (depending on the state's general fund). Currently, all employers are assigned a subsidiary tax rate of either 0.30%, 0.60%, 0.90% or 1.0% (1.0% is the rate for 1998), depending on the amount in the state's general fund.

New Additional Tax: Re-Employment Service Fund. All liable employers will be required to submit a quarterly payment of 0.075% of the quarterly taxable payroll. This is new for 1999.

While it is too early to determine whether these provisions will benefit employers more than hurt them, this new law appears to be a step in the right direction for the Department of Labor. *

Adam Lambert, CPA, and David Germain are tax managers at Arthur Andersen LLP.

State and Local Editor:
Barry H. Horowitz, CPA
Eisner & Lubin LLP

Interstate Editor:
Nicholas Nessi, CPA
BDO Seidman LLP

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co LLP

Leonard DiMeglio, CPA
PricewaterhouseCoopers LLP

Steven M. Kaplan, CPA
Kahn, Hoffman, Nonenmacher & Hochman LLP

John J. Fielding, CPA
PricewaterhouseCoopers LLP

Warren Weinstock, CPA
Paneth, Haber & Zimmerman LLP

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.