Contributions are paid to the Texas Workforce Commission (TWC) in one of two ways: taxes or reimbursements.
Taxed employers pay taxes every quarter.
Reimbursing employers repay TWC for unemployment benefits paid to eligible former employees. Reimbursing employers include certain non-profit and government employers.
Reimbursing employers report their employees' wages. If unemployment benefits are paid to former employees:
- Reimbursing employers are billed quarterly.
- They must repay regular benefits and 50 percent of any federal extended benefits paid during the prior quarter.
- Government employers repay 100 percent of federal extended benefits paid during the prior quarter.
The following employers may pay reimbursements instead of unemployment taxes:
- A political subdivision of the state including which chooses to be a reimbursing employer. This may include municipalities, counties, utility districts, public education institutions, and more.
- A non-profit organization described in Section 501(c)(3) of the Internal Revenue Code
- State government agencies
- An American Indian tribe or any of its governing bodies
TWC sends a Reimbursable Unemployment Benefits Statement each quarter. Reimbursement payments are due on the specified due date.
They may be paid using any of the payment options for Unemployment Insurance tax.
Electronic funds transfers are required for an employer that:
- Paid reimbursements in the preceding state fiscal year of $250,000 or more, and
- Anticipates doing the same in the current fiscal year
A reimbursing employer is subject to the same late report and payment penalties as a taxed employer.
To choose to become a reimbursing employer is like deciding to stop carrying casualty or auto insurance. If no casualty or accident occurs, you save cost of the premium. Likewise, if no former employee is paid unemployment benefits, you save saved the cost of the tax.
- If no benefits are paid to your former employee(s), you will have no reimbursements to pay.
- Even if some benefits are paid, the amount of reimbursements over time may be less costly than paying a tax for the same period.
- Paying reimbursements may cost more than paying a tax.
- A taxed employer normally knows in January of each year their tax rate for the calendar year. A reimbursing employer never knows their potential liability. And they may be required to pay reimbursements more than two years after the worker has left their employment.
- A reimbursing employer may have to post a surety bond to secure the payment of reimbursements. It is possible that the cost of a bond could be greater than the tax. (TWC has never employed this provision of the law.)
Note: Two or more reimbursing employers may file a joint application with the Commission to establish a group account. The purpose of the group account is to share the cost of reimbursements of the members of the group account. A group account would help spread the cost among the members. But members would be required to pay reimbursements for former employees of any member of the group. So, this may or may not be an advantage. Political Subdivisions already have a taxed group account.
You must complete an Election to Pay Reimbursements (Form C-6A) to elect to pay reimbursements. The deadline for Form C-6A depends on whether you have a newly established account or not. For a newly established employer tax account, the due date is within 45 days from the date the liability notice letter is sent to you. For previously established taxed employers, the C-6A must be received by December 1st to change the status for the next calendar year.
Once you decide to be reimbursing or taxed, you must keep that status for at least two calendar years. After two years you may request to change that status. Reimbursing status may be changed by filing the Application for Withdrawal of Election to Pay Reimbursements (Form C-6F) Form C-6F is due no later than December 1st to take effect the next calendar year.
The Texas Unemployment Compensation Act (TUCA) provides that two or more reimbursing employers may establish a group account. The purpose of a group account is to share the costs of unemployment benefits paid to former employees.
The members of a group choose an individual to act as the group representative. The group representative submits reports and pays reimbursements.
The advantage in forming a group is that the risk for payments of reimbursements is shared among all members. But each member shares the cost of the group's reimbursements even if none of its own former employees have received benefits.
Unemployment Insurance tax rates are calculated for taxed government employers as a group. All taxed government employers will have the same rate in a given year. Tax rates for taxed government employers are determined by the amount all government employers have withdrawn from the Unemployment Compensation Trust Fund in benefit payments to their former employees as compared to the amount of taxes that they paid.