Funding of Unemployment Benefits

As we all know, the only certainties in life are death and taxes. But, did you know that there may be a choice in the way you pay taxes? Well, there is a choice that 501(c)(3) not-for-profit organizations can make in regards to the Wisconsin state unemployment tax and how they finance the unemployment benefits costs. 501(c)(3) organizations in Wisconsin have the choice between the tax and reimbursement methods of financing unemployment benefits costs.

Per the Wisconsin Department of Workforce Development website, the most common form of financing unemployment benefits costs is through the tax financing method. The tax financing method has employers pay a quarterly unemployment tax on the wages paid to their employees with the quarterly tax and wage reports filed with the Wisconsin Department of Workforce Development. So, every quarter, 501(c)(3) not-for-profit organizations make payments based on the wages paid to employees times a percentage determined by the Wisconsin Department of Workforce Development and communicated to the organization on Form UCT-100B in mid-October of the prior year.

The other method of financing unemployment benefits costs is the reimbursement financing method. The reimbursement method does not have employers pay a quarterly tax when the employers file their quarterly tax and wage reports with the Wisconsin Department of Workforce Development. Instead, the reimbursement method has employers reimburse the Wisconsin Department of Workforce Development for 100% of the unemployment benefits charged to the employer’s account. The Wisconsin Department of Workforce Development sends out billing notices, which show all benefits charged to the employer’s account, on a monthly basis to employers electing the reimbursement financing method.

The unemployment benefit accounts for not-for-profit organizations are normally set up on the tax financing method but the reimbursement financing can be elected. To elect the reimbursement financing method, the not-for-profit organization will file a request for election and an assurance of reimbursement with the Wisconsin Department of Workforce Development. The assurance of reimbursement can be in the form of a surety bond, letter of credit, certificate of deposit, or any other nonnegotiable instrument of fixed value.

When filing the original assurance of reimbursement, the not-for-profit’s assurance for reimbursement has to cover the five year period starting from the beginning of the year in which the not-for-profit’s reimbursement financial election takes effect. The amount of the assurance for reimbursement must be at least equal to 4% of the not-for-profit’s taxable wages for the past calendar year. Every other year, the assurance for reimbursement amount is recalculated based on the prior calendar year wages. If the not-for-profit ceases business or converts back to the tax financing method, the assurance for reimbursement must remain in effect for up to two and a half years to cover the period of benefit claim liability. At the end of the period of benefit claim liability, the assurance for reimbursement is returned to the not-for-profit organization.

For interested not-for-profit organizations with a 501(c)(3) designation, additional information can be found on the Wisconsin Department of Workforce Development’s website at http://dwd.wisconsin.gov.

For not-for-profits with tax-exempt designations other than 501(c)(3), the tax financing method is the only option available at this time.