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How is my annual tax rate calculated, if the rate is based on experience?

The rate is computed using the three most recent complete fiscal years of benefit charges and taxable payroll. A fiscal year begins July 1st and ends the following June 30th.

Benefit charges (Item 9 on the Tax Rate Notice, Form UC-216) are costs for actual benefits paid to former employee(s). Taxable payrolls (Item 10) include taxable wages upon which taxes have been paid by the preceding July 31st. Your benefit ratio (Item 11) is determined by dividing total benefit charges (Item 12) by total taxable payroll (Item 13) for the three most recent complete fiscal years.

With knowledge of your benefit ratio (Item 11) and statewide schedule (Item 3), you can verify the computed rate (Item 5) and tax rate (Item 6) in the Tax Rate Table. An excerpt of the Tax Rate Table contained in Section 25-4-54(f) of the Alabama Unemployment Compensation (UC) Law is listed below.

The statewide schedule (Item 3) and shared cost (Item 4) are determined in accordance with 1989 amendment to the Alabama Unemployment Compensation Law. The amendment contains four rate schedules: A, B, C, and D. The applicable schedule is determined yearly by a formula that looks at the relationship of the Unemployment Compensations Trust Fund’s balance to the desired level of the Fund. Shared cost (Item 4) is determined yearly and is defined as cost that cannot be assigned to a specific employer. Shared cost (Item 4) is added to the computed rate (Item 5) to determine the tax rate (Item 6). Employment Security Enhancement (ESA – Item 7) monies are deposited to the Employment Security Enhancement Fund in the State Treasury and used to assist unemployed claimants in obtaining employment.

To verify the tax rate (Item 6), find the line and benefit ratio range which corresponds with your benefit ratio (Item 11) on the Tax Rate Notice. Follow across to the applicable tax rate schedule (Item 3) given below to determine your rate. If your benefit ratio is 0.37%, your rate under Schedule C is 0.50%. All rates must be reduced by 0.06% ESA except 5.40%. After the 0.06% reduction, the rate will agree with the computed rate (Item 5) on the Tax Rate Notice. The computed rate would be 0.44% for this example. Add shared cost (Item 4) to the computed rate (Item 5) to determine the tax rate (Item 6) on the Tax Rate Notice. Your rate (Item 6) and ESA (Item 7) may be combined to determine your total rate at which payment is computed quarterly.

To view general information about the tax rate system, you may download the current publication of the “Employer Handbook” at http://labor.alabama.gov/. The complete tax rate schedule, Tax Rate Table and shared cost from the UC law may be viewed online at http://alisdb.legislature.state.al.us/acas/CodeOfAlabama/1975/25-4-54.htm. You may contact the Experience Rating Section at the telephone numbers and address shown at the end of his section, if you have more questions.