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New York Property Managers Face Higher Unemployment Taxes

The New York State Department of Labor recently enacted reforms to the unemployment insurance system that will dramatically increase the cost to many employers. Companies with a large proportion of lower wage employees, temporary seasonal staff or who experience higher turnover will be hit especially hard.

Real estate property management firms will fall into this category due to the large number of staff employed at the individual property sites they manage and the numerous seasonal staff they employ for landscaping and swimming pool services in the summer months. In addition, the higher turnover associated with a changing portfolio of management accounts adds yet another factor contributing to higher costs.

The reforms were enacted due to the fact that the New York State Unemployment Trust Fund is insolvent. Unemployment benefits paid out to unemployed workers exceeded the unemployment taxes collected from employers by $3.5 billion by the end of 2013. In order to fund these benefits the State borrowed this money from the Federal government. By law, employers are now responsible for paying back this money, with interest.

Since New York State has been unable to repay the loans, the government has increased the amount of the Federal Unemployment Tax collected from New York State employers. This has been accomplished by reducing the amount of the Federal Unemployment Tax Act (FUTA) tax credit. For New York State employers the credit was reduced by .90% which increases the net Federal Unemployment Taxes from .60% to 1.50% on the first $7,000 of each employee’s wages.

In addition, since the State’s federal loans have been outstanding for more than two years, employers must make addition FUTA payments to pay interest expense and a mandatory reduction of the loan balance. For most employers this extra FUTA charge was collected retroactively with the fourth quarter payment due in January of 2014.

To address the situation and improve the sustainability of the unemployment system, New York State enacted a change to the increase the employee wage base subject to the state unemployment tax. Effective January 1, 2014 the wage base was increased from $8,500 to $10,300, which increases the tax paid for every employee earning over $8,500. In addition, the new reforms continue to increase the wage base each year until it reaches $13,000 in the year 2026. After that the wage base will be adjusted annually to 16% of the state’s average annual wage.

What’s this all mean? Assuming your current New York State Unemployment tax rate is around the average of 6%, you will be paying a minimum of $171 in additional unemployment tax for each and every employee who makes up to $10,300. Tack on the special FUTA charges next January for the federal loans and this amount will be even higher.

For a property manager with over 300 employees during the peak summer months this becomes a significant expense that their client, the property owner, will have to bear.

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