UIT Solvency Tax Surcharge Q & A

In accordance with the Colorado Employment Security Act (CESA) 8-76-102 (5)(a)(I), ratable employer accounts were assigned a solvency tax surcharge (STS) beginning in calendar year 2004. This STS is the result of the Unemployment Insurance (UI) Trust Fund’s level of solvency decreasing below a level that ensures the ability of the UI Program to pay UI benefits. The STS is added to the standard or computed tax rate when the UI Trust Fund balance, on any June 30, is equal to or less than nine-tenths of 1 percent of the total wages reported by ratable Colorado employers for the calendar year or the 4 consecutive quarters prior to the last computation date.

FOR WHAT LENGTH OF TIME IS THE SOLVENCY TAX SURCHARGE ASSESSED?

The STS is a temporary surcharge that is increased in yearly increments until:

A maximum STS, as mandated by law, is reached.
NOTE: The STS limit (maximum) can vary from employer to employer. The STS limit is determined by the employer’s percent of excess for the current calendar year. The STS cannot exceed the limit established for each percent of excess in CESA 8-76-102 (5)(b).
-or-
The UI Trust Fund reaches a monetary level such that the STS is no longer necessary.

HOW IS THE SOLVENCY TAX SURCHARGE CALCULATED?

Annual incremental increases to the STS are outlined in the STS tax-rate schedule in CESA 8-76-102 (5)(b). As shown in the STS tax-rate schedule, an employer’s accumulative STS rate depends on his or her percent of excess during each year the STS has been in effect.

To calculate your STS rate for calendar year 2008, add the annual incremental increase (which is based on your percent of excess) to your 2007 STS rate.

What Is the Percent of Excess?

The percent of excess is used to determine an employer’s computed tax rate. Employers are assigned a positive percent of excess if the amount of UI taxes they paid to the UI Trust Fund is greater than the amount of UI benefits charged to their account. Employers are assigned a negative percent of excess if the amount of UI taxes they paid to the UI Trust Fund is less than the amount of UI benefits charged to their account.

The percent of excess is computed by subtracting the benefits charged to an employer account from the taxes paid to that account and dividing the result by the average annual taxable payroll. The percentage is computed to the nearest 1 percent. This rate-computation formula applies only to accounts that have met the qualifications for a computed rate in accordance with CESA 8-76-103 (3)(a)(I) or 8-76-103 (3)(a)(III)(E).

NOTE: Employers with a positive percent of excess are assigned a lower computed tax rate, while employers with a negative percent of excess are assigned a higher computed tax rate.

Solvency Tax Surcharge Calculation Examples

The tables below provide scenarios for calculating the STS for calendar year 2008.

NOTE: For calendar year 2006, CESA 8-76-102 (5)(a)(II) nullified the incremental increase for all ratable employers with a standard or computed rate. This adjustment applied to 2006 only.

No Change to the Percent of Excess

Calendar Year	Percent of Excess	STS Yearly Increment	STS 2006 Incremental Adjustment	STS Rate
2004	+5	.002	Not Applicable (NA)	.002
2005	+5	.002	NA	.004 (.002+.002= .004)
2006	+5	.002	-.002	.004 (.004 +.002 -.002=.004)
2007	+5	.002	NA	.006 (.004+.002= .006)
2008	+5	.002	NA	.008 (.006+.002= .008)

Increase in Percent of Excess

Calendar Year	Percent of Excess	STS Yearly Increment	STS 2006 Incremental Adjustment	STS Rate
2004	+5	.002	NA	.002
2005	+7	.001	NA	.003 (.002+.001= .003)
2006	+8	.001	-.001	.003 (.003+.001-.001=.003)
2007	+9	.001	NA	.004 (.003+.001= .004)
2008	+10	.001	NA	.004 (.004+.001= .005, exceeds the limit of .004)

Decrease in Percent of Excess

Calendar Year	Percent of Excess	STS Yearly Increment	STS 2006 Incremental Adjustment	STS Rate
2004	-1	.006	NA	.006
2005	-5	.007	NA	.013 (.006+.007= .013)
2006	-10	.008	-.008	.013 (.013+.008-.008=.013)
2007	-15	.009	NA	.022 (.013+.009= .022)
2008	-20	.010	NA	.032 (.022+.010= .032)

Maximum Limit Reached

Calendar Year	Percent of Excess	STS Yearly Increment	STS 2006 Incremental Adjustment	STS Rate
2004	-7	.007	NA	.007
2005	+10	.001	NA	.004 (.007+.001= .008, exceeds the limit of .004)
2006	+17	.001	-.001	.003 (.004+.001-.001= .004, exceeds the limit of .003)
2007	+19	.001	NA	.003 (.003+.001= .004, exceeds the limit of .003)
2008	+19	.001	NA	.003 (.003+.001= .004, exceeds the limit of .003)

The STS cannot exceed the limit (maximum) established for each percent of excess in CESA 8-76-102 (5)(b). The STS limit can vary from employer to employer.

For more information on STS and examples of STS rate calculations that include liability dates, visit the Solvency Tax Surcharge and Its Impact on Tax Rates for Calendar Year 2008 Web page.