As executive leaders of 501(c)(3) organizations in New York, staying ahead in financial planning is a crucial part of ensuring that your organization can continue its important work. With the State Unemployment Tax Act (SUTA) wage base set to increase in 2024, it’s imperative to understand how these changes will affect your nonprofit and what strategies you can adopt to mitigate potential financial strain.
New York’s SUTA Wage Base Increase for 2024
An increase in the SUTA taxable wage base is looming:
- Taxable Wage Base Adjustment: The base is set to rise from $12,300 in 2023 to $12,500 in 2024. This increment, while seemingly small, can have a larger impact when applied across numerous employees.
The Ripple Effect on Nonprofits
A higher wage base means higher contributions to the state unemployment fund:
- Increased Unemployment Tax Contributions: For each employee, New York nonprofits will be taxed on an additional $200 of wages under SUTA. Multiplying this by the number of employees could result in a substantial uptick in your organization’s annual tax bill.
- Budget Considerations: The adjustment in the wage base may necessitate a review of your operating budget. Increased expenses in one area could mean tighter constraints or the need for increased funding in others.
Embracing a Reimbursement Plan to Curb Costs
While higher SUTA taxes might seem like an inevitable challenge, there is a viable alternative that could provide significant savings for qualifying 501(c)(3) organizations—opting for a reimbursing method over the tax-rated method.
- Direct Reimbursement for Unemployment Claims: This approach allows your nonprofit to reimburse the state directly for the actual amount of unemployment benefits paid out to former employees, instead of paying taxes based on the wage base.
- Potential Reduction in Unemployment Costs: By reimbursing the state only for benefits claimed, your nonprofit could see a decrease in the total amount paid out compared to what would have been contributed through taxes on the higher wage base—provided that your actual unemployment claims are lower.
- Enhanced Financial Management: With the reimbursement option, 501(c)(3) organizations gain improved oversight over unemployment costs. This proactive management can lead to more predictable budgeting and a clearer understanding of financial obligations.
New York employers have until December 31, 2023, to notify the state of their decision to reimburse rather than pay SUTA in 2024.
Weighing the Pros and Cons
As with any strategic decision, it’s important to consider both sides:
- Assessing Liquidity: Ensure your nonprofit has the liquidity to cover unemployment claims, which can be sizeable or occur unexpectedly.
- Administrative Duties: Consider whether your organization has the resources to manage the administrative requirements of reimbursing unemployment claims.
- Risk Assessment: Analyze the overall risk to your nonprofit and balance it against the potential savings from not paying taxes on the higher wage base.
The imminent rise in New York’s SUTA wage base for 2024 presents both challenges and opportunities for 501(c)(3)s. By evaluating the benefits of a reimbursement plan, your organization may be able to mitigate the impact of increased SUTA taxes. As you navigate these fiscal waters, remember that careful planning and consultation with financial experts are key to steering your nonprofit toward a sustainable future. Your organization’s ability to continue making a difference could depend on the financial foresight applied today.
501(c) Services has more than 40 years of experience helping nonprofits with unemployment outsourcing, reimbursing, and HR services. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy and are committed to providing our clients with customized plans that fit their needs.
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(Photo credit: Vlad Alexandru Popa)
The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.