Alternatives To Unemployment Taxes For 501(c)(3)s

By Ellen Johnson, Joint Agencies' Trust

Many 501(c)(3) rural health clinics do not realize they have an option for their unemployment coverage--they can pay the state unemployment insurance tax (SUI) or just reimburse the state for claims paid to former employees.

California’s unemployment taxes range from 2.7-6.1% on the first $7,000 of wages per employee. As a result, most nonprofits pay $3-$6 in taxes for every $1 the state pays in claims.

A rural health clinic in Northern California with a payroll of $3.2 million and a tax rate of 5.6% would pay over $36,000 in 2005 SUI taxes. By reimbursing instead, over the next ten years this agency could save more than $180,000.

Approximately 1,000 CA nonprofits belong to grantor trusts that file the paperwork and handle claims payments to the state. Other trust services may include member-owned reserve accounts, stop-loss insurance, claims management services, educational workshops, and HR resources.

Brandon Watkins, Chief Financial Officer of Mountain Valleys Health Centers, and a member of the Joint Agencies’ Trust said, “It is great to know that we are only paying for claims that we have and not subsidizing other companies.”

The bottom line on unemployment coverage is to investigate your options. It makes financial sense to evaluate whether paying taxes, reimbursing on your own, or joining a trust is the best way for your clinic to save money, safely and securely.

Ellen Johnson is with 501(c) Services, Inc. that manages the Joint Agencies’ Trust in Cupertino, CA. Since 2004 she has enrolled eight Rural Clinics, saving them over $395,000. For information contact her at (408) 213-1160, or Ejohnson@501c.com.

Article Posted 06/30/05