TWC uncovers $1.8 million in unpaid taxes

The Texas Workforce Commission (TWC) has recovered nearly $1.8 million in unpaid employer taxes and interest through the use of new software technology designed to detect illegal tax avoidance schemes.

The reclaimed funds will be deposited back into the Unemployment Insurance (UI) Compensation Trust Fund.

SUTA (State Unemployment Tax Act) dumping is an illegal taxavoidance scheme used by some employers to lower their UI tax rates. Because employer tax rates are experienced-rated, or based on the number of UI claims filed by former employees, they can fluctuate depending on an employer's payroll history. Employers who engage in SUTA dumping attempt to manipulate this experience-rated tax by moving payrolls to a new company. The new business is taxed at a rate that does not include UI liability, resulting in a lower calculated tax rate.

TWC implemented SUTA dumping detection software in 2006 which can track the movement of payrolls between companies. As a result, TWC has identified 22 employer accounts with identified SUTA dumping activities and has recovered nearly $1.8 million.

SUTA dumping is a Class B misdemeanor. Penalties assessed by TWC include a 2 percent increase to the employer's tax rate for up to four years. Service agents or others that assist employers in circumventing these provisions can also be assessed a civil penalty of $5,000 for each offense.

TWC collects UI taxes from employers to compensate workers who are unemployed through no fault of their own, but still seeking work.

The agency encourages all Texas employers to educate themselves about the specific rules outlined in the law and to contact the agency's Tax Department if they have any questions or concerns.

The State Unemployment Tax Act (SUTA) Dumping Prevention Act (H.R. 3463) was unanimously passed by the U.S. House of Representatives on July 14, 2004.

The U.S Senate approved the bill July 23, 2004, and it was subsequently signed by President George W. Bush. This statute is intended to prevent businesses from participating in the practice of SUTA dumping.

In response to the federal law, the Texas Legislature passed HB 3250 in the 79th Regular Session to address the SUTA dumping issue.

The law applies to the transfer of businesses that occurred on or after Sept. 1, 2005 and is intended to close loopholes in the UI laws and to strengthen the financial integrity of the UI program.

Questions concerning SUTA dumping can be directed to your nearest TWC Tax Office, by calling TWC's Tax Department at (512) 463-2699 or e-mail tax@twc.state.tx.us.