Understanding the Texas State Unemployment Tax Rate Calculation
There has been a substantial increase in the number of unemployment claims filed by Texas employees. This increase has the potential to raise the unemployment tax rate for employers that do not take proactive steps to manage their Texas unemployment tax rates. The state unemployment tax rate is the only business tax an employer can control.
To understand how to manage the unemployment tax rate, an employer first must understand how the tax rate is calculated. For calendar year 2009, Texas employers pay state unemployment tax on the first $9,000 of wages paid to each employee. The unemployment rate ranges from a minimum of .26 percent to a maximum of 6.26 percent. An employer’s state unemployment tax rate is the sum of three components: Replenishment Tax Rate (RTR); Employment and Training Investment Assessment (ETIA); and the General Tax Rate (GTR). The effective tax rate is calculated by adding the ETIA, RTR and GTR.
The RTR is a flat tax rate assessed to all Texas employers to replenish ½ of the unemployment trust fund payments made to claimants that were not charged back to (i.e., assessed against) a specific employer. The RTR is calculated by dividing ½ of the unemployment benefits paid, but not charged to a particular employer, by the total taxable wages for the year. The rate is then spread across all experience-rated employers. An individual employer has no meaningful way to reduce its RTR.
The second component of the Texas unemployment tax rate is the ETIA. It is a fixed rate of .10 % which is taxed to fund the Skills Development fund. The ETIA is fixed and applies to all Texas employers, so there is no way to manage or reduce this tax rate.
The final component, the GTR, is based on the employer’s individual responsibility for repaying unemployment benefits to its former employees. The GTR is the employer's only opportunity to reduce Texas unemployment tax by lowing the employer's experience rating. Experience ratings can be reduced by limiting the unemployment benefit claims paid to former employees. This is principally done by limiting employee turnover and timely challenging claims for unemployment benefits filed by former employees who should not be eligible for benefits. The GTR is calculated by multiplying the RTR by the ratio of three years of chargeback by three years of the employer's taxable wages.
By understanding how the Texas unemployment tax rate is calculated, an employer is in a better position to manage its overall tax rate and ensure that it is not taxed more than it should be.
