All Arizona employers are required to pay unemployment taxes to the state of Arizona. The tax rate applied on the Determination of Unemployment Tax Rate is applied to the first $7,000 of wages.

The Department of Economic Security (DES) calculates this rate based on a “reserve ratio.” This reserve ratio is calculated by comparing wages paid during a base period (the prior 3 years ending June 30), with benefits paid out to employees. The higher the claims, the higher the rate.

Employers may be able to reduce the rate by pre-paying amounts into their accounts. This is generally beneficial when employers will have more employees in the current year than they had in the year previous. To calculate if the voluntary payment makes sense for you, use the following steps:

Step 1 - Estimate your taxable payroll

Multiply the projected number of employees x $7,000

Step 2 - Project your estimated payroll tax

Multiply the taxable payroll by the rate on the top of the notice.

Step 3 - Project your reduced tax rate

Multiply the taxable payroll by the rate on the bottom of the notice.

Step 4 - Compare ...

Subtract the tax calculated in Step 3 from the tax calculated in Step 2. If the amount saved is more than the voluntary payment, you will save taxes, and should make the payment. If not, or if the savings is so small it isn’t worthwhile, then do nothing.

If you have any questions regarding payroll taxes, please let us know. To schedule an appointment, go to the ‘Quick Links’ at the bottom of this page and let us know you need some help!

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