Missouri Unemployment Loan: It's Time to Pay the Piper

Sandy Piper, CPA

In February of 2009 Missouri began borrowing money from the federal government in order to meet its unemployment payment obligations.  As of July 23, 2012, Missouri owed a total of 568,819,264.71 to the Federal Unemployment Account, according to the U.S. Department of Labor.  For Missouri employers, who are required to repay the loan with interest, there is a two part whammy.

Part I

Interest charges on the loan, which had previously been delayed for two years by the 2009 federal economic stimulus legislation, must now be paid.  Beginning in 2011, the Missouri Division of Employment Security will notify each employer of its share of the interest payment beginning with the second quarter 2012 Contribution and Wage Reports.

The interest assessed which may not, due to federal law, come out of normal unemployment fund money, is based on the employer's taxable payroll during the previous calendar year and will be printed on line 8, Interest Assessment Due to Federal Advances.  Interest charges will continue for the foreseeable future, with interest payments being due with the 2^nd quarter MODES return.

Part II

Since Missouri is in a long term borrowing situation, federal law mandates an increase in the effective rate of federal unemployment tax (FUTA).  This is separate from the interest charges. 

Currently FUTA is 6.0% of the first $7,000 paid to each covered employee.  Since Missouri has what is termed an approved unemployment insurance law, employer's receive a credit of 5.4% which normally makes the effective federal rate 0.6%.

At the end of 2011, employers were subject to a credit reduction of 0.3% which was payable by the end of January 2012, making the 2011 FUTA rate 0.9%.  This year the credit reduction will be 0.6%, essentially doubling what employers were paying for FUTA two years ago.  The money attributable to this current 0.6% reduction will be payable in January of 2013. 

As an example, if an employer paid total FUTA in the amount of $5,000 for 2012, they will have to pay an additional $5,000 by January 2013 as part of their 2012 obligation. 

When will it end?

While the amounts yielded from these reductions are being used to pay down the loan, there have been additional borrowings and, in fact, the loan balance increased from June to July.  According to the Missouri Unemployment Office, the state does not currently have an available projection indicating when full repayment may be expected.  This is due to the continued volatility of unemployment payment requirements in the state.

At one point, says a state employee, it was thought that the loan might be repaid by 2017.  However, the state no longer believes the loan will be repaid by that time and, at present, does not have a published projection for retirement of the loan.  For the foreseeable future, paying the "piper" will be more expensive, not less, as credit reductions will increase 0.3% per year until the loan is repaid. 

For information about how this may affect your overall tax picture, consult your tax professional.  If you are in need of a tax professional, please contact us.

Healthcare Rebate: What do you do with that check?

Holly Breuer, CPA

Because some health insurance providers were deemed to have "overspent" on their 2011 overhead expenses by the Patient Protection and Affordable Care Act (Obamacare), some health insurance policyholders have received rebates of a portion of the premiums they paid or they will be getting that rebate soon.  Getting a check in the mail is always nice, but then the question comes up:  what do you do with it once it arrives?  Well, if you're a business owner, that will depend on several things:   

·         How much of the premium did you, as the employer, pay for your employees?

·         How many of your employees were part of your plan in 2011?

·         Were the original premium payments paid pre-tax or post-tax?

If you as the  employer paid all of the health insurance premiums as part of your benefit package for employees, then really nothing needs to be done except to cash the check.  If, though, as is generally the case, the employees pay for some part or percentage of their monthly premiums, then you have the responsibility to make sure that the employees’ share of the rebate is allocated to them in a fair manner and then paid either through a direct refund or through reduction  of their share of future premium costs. 

Example:  You paid 50% of the health insurance premiums for your ten employees and they paid the other 50%.  If you receive a rebate check for $5,000, then the business will keep $2,500 of the rebate and the remaining $2,500 is allocated to the employees.  Assuming there has been no employee turnover, it should not be burdensome to either refund the amount using a formula relative to what each employee paid in premiums; or use the total to reduce their future premiums.

What if the amounts allocable to each employee are negligible or what if they had paid for their insurance premiums on a pre-tax basis and the rebate would be a taxable item to them?  You could decide to forgo the refund route and  instead use that rebate money to lower your current employees' future health insurance premiums.  This is also a good option for a business with a high turnover of employees since you will not be required to find employees that paid premiums in 2011 who may no longer be with your company.

If you want more information, the IRS has an FAQ sheet regarding these rebates, called "Medical Loss Ratio" rebates.  You will find that information here: http://www.irs.gov/newsroom/article/0,,id=256167,00.html

Of course, you can also call me if you have any questions.

Review Your Social Security Claiming Options Early

Jennah Purk, CPA, CHBC

The decision on how and when to claim social security benefits is one of the most important financial decisions many of us will make.  If you are married, the options and complexity increase significantly. Accordingly, a good retirement plan will include a review of the social security options long before the actual implementation date.

Maybe you know some of the basics:

·        You need 40 quarters of employment to collect benefits.

·        There is up to a 25% penalty for claiming benefits early.

·        You can increase your “full retirement age” benefits up to 32% by waiting until age 70.

Many people have a “take it while I can get it” approach, starting their benefits at age 62.  If there are health issues or lack of family longevity, this may be fine.

Many articles suggest that for a couple, the lower earning spouse claim benefits at age 62 based on their earnings record, and the higher earning spouse wait until age 70.

While we can’t even scratch the surface of this issue here, make sure you understand all your options well in advance so you can choose the optimal course when the time comes.

For more information, refer to the Social Security Administration or contact us.