Voluntary Contribution Program

Unemployment Insurance (UI)


New rules, as of Feb. 2021

Recently signed legislation for tax relief may make the Voluntary Contribution program more appealing to your company’s bottom line in 2021 including:

  • Surcharge fee (10%) is waived.
  • Program open to employers moving only eight rate classes, rather than 12.
  • Minimum class buy down decreased from four to two.
  • Extended the deadline to apply in 2021 from Feb. 15 to Mar. 31.

You can lower your tax rate

In 1995, Washington adopted a “voluntary contribution” provision in state law explicitly for helping small businesses seeing large increases in their experience rate. The program allows employers to reimburse the Employment Security Department (ESD) for benefits in exchange for subtracting those benefit charges from the employer’s account, reducing the employer’s experience tax rate.

A single one-time payment can be for all or part of the unemployment benefits paid to their former (or current) employees over the last two fiscal years. We subtract those benefit charges from the employer’s account reduces the employer’s experience tax rate.

In the first quarter each year, eligible employers are mailed (USPS) a notice and application for the program. To be eligible, employers:

  • Must be taxable.
  • Are not a Local Government.
  • Cannot currently have a delinquent tax rate.
  • Must have account rate class increasing by at least 12 rate (eight for 2021) classes from previous calendar year tax rate run.

Details about the plan

The amount you pay (excluding the surcharge) will reduce the unemployment benefit charges we use for calculating your tax rate for this year and future years.

  • Participation is voluntary.
  • Qualified employers are automatically mailed notice and application
  • Minimum buy down is two rate classes.

How to participate

Employers who would like to participate should complete the Voluntary Contribution Program application and return it with their exact payment (shown in "Benefit charge contribution") by the date required on the application.

In return, we will mail you a tax-rate notice confirming your new tax rate, or you can view it online in the Employer Account Management System (EAMS).

Cost vs. Benefit

These observations are unique to each employer, but in general:

Voluntary Contribution plan may help if an employer:
  • Anticipates taxable payroll will grow or be stable over the next four years.
Voluntary Contribution plan may not help if an employer:
  • Anticipates another large spike in benefit charges.
  • Expects a large drop in taxable payroll.
  • Thinks they will close their business in the next four years.

This program can be valuable for many employers but doesn't make sense in every scenario.  Review some examples below showing where it does and doesn't save employers money

Example A

Business has:

Consistent annual taxable payroll of $500,000 every year.

The business had $0 in benefit charges before 2020 placing it in Rate Class 1 with a 0% experience tax rate.

The business incurs $80,000 in benefit charges in 2020.

Without offsetting their benefit charges, they move to rate class 33 and their bill looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 4.25% $21,500
2022 $500,000 4.25% $21,500
2023 $500,000 4.25% $21,500
2024 $500,000 4.25% $21,500
Total $85,000

If company pays $7,502, the minimum for them to drop three classes (to rate class 30), it looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 3.63% $18,500
2022 $500,000 3.63% $18,500
2023 $500,000 3.63% $18,500
2024 $500,000 3.63% $18,500
Voluntary Contribution $7,502
Total $80,102

They would have paid a total of $85,000 in taxes over four years, but by paying $7,502 to offset some benefit charges, they saved $4,898.

Example B

Business has:

Consistent annual taxable payroll of $500,000 every year.

The business had $0 in benefit charges before 2020 placing it in Rate Class 1 with a 0% experience tax rate.

The business incurs $76,000 in benefit charges in 2020.

Without offsetting their benefit charges, they move to rate class 32. their bill looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 4.00% $20,000
2022 $500,000 4.00% $20,000
2023 $500,000 4.00% $20,000
2024 $500,000 4.00% $20,000
Total $80,000

If company pays $76,000 to offset benefit charges, moving back to rate class 1, it looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 0.00% $0
2022 $500,000 0.00% $0
2023 $500,000 0.00% $0
2024 $500,000 0.00% $0
Voluntary Contribution $76,000
Total $76,000

They would have paid a total of $80,000 in taxes over four years, but by paying $76,000 to offset the benefit charges, they saved $4,000.

Example C

Business has:

Consistent annual taxable payroll of $500,000 every year.

The business had $0 in benefit charges before 2020 placing it in Rate Class 1 with a 0% experience tax rate.

The business incurs $58,000 in benefit charges in 2020 AND then $15,000 in 2021.

Without offsetting their benefit charges, they move to rate class 25, then 31, then 8 and their bill looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 3.00% $15,000
2022 $500,000 3.75% $18,750
2023 $500,000 3.75% $18,750
2024 $500,000 3.75% $18,750
2025 $500,000 0.76% $3,800
Total $75,050

If company pays $58,000 to offset benefit charges, it moves only to rate class 8 and it looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 0.00% $0
2022 $500,000 0.76% $3,800
2023 $500,000 0.76% $3,800
2024 $500,000 0.76% $3,800
2025 $500,000 0.76% $3,800
Voluntary Contribution $58,000
Total $73,200

They would have paid a total of $75,050 in taxes over five years, but by paying $58,000 to offset the benefit charges, they saved $1,850.

Example D

Business has:

Consistent annual taxable payroll of $500,000 every year.

The business had $0 in benefit charges before 2020 placing it in Rate Class 1 with a 0% experience tax rate.

The business incurs $68,000 in benefit charges in 2020 AND then $68,000 in 2021.

Without offsetting their benefit charges, they move to rate class 29, then 40 then back to 29, their bill looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 3.50% $17,500
2022 $500,000 5.40% $27,000
2023 $500,000 5.40% $27,000
2024 $500,000 5.40% $27,000
2025 $500,000 3.50% $17,500
Total $116,000

If company pays $68,000 to offset benefit charges, moving to rate class 29, but then has charges the next year, it looks like this:

Taxable Payroll Experience Rate Tax Due
2021 $500,000 0.00% $0
2022 $500,000 3.50% $17,500
2023 $500,000 3.50% $17,500
2024 $500,000 3.50% $17,500
2025 $500,000 3.50% $17,500
Voluntary Contribution $68,000
Total $138,000

They would have paid a total of $116,000 in taxes over five years, but by paying $68,000 to offset the benefit charges but then having more the next year, it cost them $22,000 more.

Questions

If you have questions, please call the Voluntary Contribution line at 360-890-3607