State Unemployment Tax Act (SUTA) dumping is a form of tax avoidance or unemployment insurance (UI) tax rate manipulation through which employers “dump” higher UI taxes by attempting to obtain a lower rate. SUTA dumping involves the manipulation of an employer’s UI tax rate and/or payroll reporting to owe less in UI taxes. UI taxes are based primarily on the employer’s own experience and can vary widely.
Iowa aggressively pursues employers who engage in various tax avoidance and tax manipulation practices. These illegal and deceptive practices cost taxpayers millions of dollars each year.
Some employers and financial advisors have found ways to pay lower UI state taxes by manipulating state experience rating systems. Most frequently, it involves merger, acquisition or restructuring schemes, especially those that involve the shifting of workforce resources and/or payroll.
Employer’s Unemployment Insurance Experience
All states operate experience rating systems in order for employers to receive the additional credit against the Federal unemployment tax. The more UI benefits paid to former employees, the higher the unemployment tax rate for the employer (up to a maximum established by state law).
An employer’s UI tax experience is based on:
- taxable wages
- contributions paid into the UI Trust Fund
- benefit payments to former employees
Experience rating systems help employers by:
- ensuring an equitable distribution of costs of the UI program
- encouraging workforce stabilization
- providing an incentive for employers to fully participate in the UI program
SUTA dumping is harmful because it:
- compromises the integrity of the UI system
- results in an uneven playing field
- adversely affects tax rates for all employers
- costs the UI Trust Fund millions of dollars each year
Affects of SUTA Dumping
SUTA dumping hurts everyone because as a result employers, employees and taxpayers make up the difference in higher taxes, lost jobs, lost profits, lower wages and higher costs for goods and services. When employers SUTA dump, they move employees from their high rate UI tax accounts to a new lower rate tax account. In the process, the accrued charges in the old accounts are left behind and are not picked up by the new accounts. These unpaid charges remain unpaid by the employer who incurred the charges, and are instead spread among all employers.
Identification and Enforcement
Iowa Workforce Development (IWD) utilizes sophisticated fraud detection software and other analysis tools to identify potential violators. IWD will vigorously and comprehensively investigate those employers engaging in SUTA dumping.
Iowa’s laws apply a penalty contribution rate of two percent for the current year and two subsequent years. Interest will accrue on unpaid penalty contributions in the same manner as regular contributions.
Report Suspected SUTA Dumping
To report SUTA dumping or for additional information, please contact:
Unemployment Insurance Manager – Field Audit
Iowa Workforce Development
1000 East Grand Avenue
Des Moines, IA 50319-0209