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Arizona Special Assessment on Taxable Wages

The Arizona legislature passed House Bill 2619 on July 20, 2011 into law retroactively effective January 1, 2011.  This legislation imposes a Special Assessment (SA) on taxable wages paid in 2011 and 2012.

Key Point:  If your company has operations in Arizona, then you may be required to retroactively pay a special assessment on taxable wages.  The state is moving quickly to collect the assessment with the first payment from business due October 31, 2011.  Contact us immediately to discuss how this may impact your company.

Payment of the SA on taxable wages paid during the first three quarters of 2011 is due October 31, 2011.

• All employers subject to Arizona Unemployment Insurance (UI) Tax in 2011 and 2012 are also subject to the SA
• Reimbursement employers¹ are exempt from SA
• The SA rate is  0.40% of the taxable wages paid in 2011 (maximum $28/employee)
• The SA rate is projected to be in the range of 0.60% - 0.80% of taxable wages paid in 2012 (maximum $42 – $56/employee)
• Payment of the SA for the first three quarters of 2011 is due by October 31, 2011, payable as follows:
  • In mid to late September 2011, the Arizona Department of Economic Security will mail employers statements of the SA amounts they owe for the first two quarters of 2011.
  • Beginning with the third quarter of 2011, SA amounts due  are payable with quarterly UI taxes and reported on Line 7 Part C of the Unemployment Tax and Wage Statement Report (UC-018).
  • Employers may include the amount of SA due for the first two quarters of 2011 on their third quarter 2011 report and remit a single payment for all amounts due.
  • Alternatively, employers may pay the SA for the first two quarters separately from a report.   Payments are accepted online through Tax and Wage (TWS) at www.azuitax.com, by check or by money order.

The rationale behind the tax – Arizona was one of thirty states that borrowed money from the federal government after their unemployment trusts were depleted.  This enabled Arizona to continue paying unemployment benefits to eligible claimants as required by federal law.   The Special Assessment will be used to pay back the principal and interest that began accruing January 1, 2011.

At this time we are unaware of any action by the State of California.  We have looked on the state Website and do not see a Special Assessment content.

¹Reimbursement Employer – in the state of Arizona:

Nonprofit organizations that are exempt from federal unemployment taxes under Section 501(c)(3) of the Internal Revenue Code, government entities, Indian tribes, and churches/religious organizations that voluntarily elect to participate in the Unemployment Insurance Program are offered an alternative method of paying for unemployment insurance: the reimbursement payment option, a form of "self-insurance." In lieu of paying taxes on a quarterly basis, you reimburse the Department of Economic Security for your proportionate share of the amount of unemployment benefits it pays to your former workers.

You may choose the reimbursement payment option within 30 days of the date you are notified of your liability for unemployment insurance coverage as an employer by completing and returning the form enclosed with the notification.  If you do not return the form, your account will be established on a tax-rated basis.  Your choice remains in effect for at least three calendar years and may be changed by filing a written application at least 30 days prior to the beginning of the fourth or any subsequent year.

What factors should be considered before choosing the reimbursement payment option?

1. This option is generally more advantageous for small employers with stable employment; the tax-rated basis is usually more advantageous for large employers who tend to have a higher rate of employee turnover, or employers of any size that have unstable employment.
2. Reimbursement payments will vary depending on the number of former employees who are receiving unemployment benefits.  With this method, it is difficult to estimate costs.  In contrast, tax-rated employers can more accurately estimate unemployment costs because their tax rates remain constant for a complete calendar year.
3. Employers who have elected the reimbursement payment option may not be relieved of charges for benefit payments for any reason.  This includes cases when former employees are paid benefits after a disqualification for quitting or discharge, in cases where they are paid benefits after subsequent employment, and certain other circumstances.  Although tax-rated employers may be relieved of charges for specific individuals, the actual cost of the benefits paid to those individuals is shared by all tax-rated employers. 

Note:  From what we can ascertain, it looks like it would be much easier to pay the first and second quarter assessment from the bill that the State of Arizona issued in September as the third quarter State tax forms do not lend themselves easily to calculating all three quarters of SA tax due.

Contact Us

Unsure how the new Arizona Special Assessment will impact your company?  Prior to selecting a payment option, it is best to consult with your Hayashi & Wayland advisor!  For additional information, please contact Sherrie Isaac, CPA, Partner –in-Charge of General Business Services at 831.759.6300, or click here to e-mail Sherrie. In a brief consultation she can assess your situation and determine the best reimbursement payment plan for you.