Not all state UI tax options are equal

October 16, 2013

Not all state UI tax options are equal

Nonprofits are not exempt from paying state unemployment insurance taxes, but  they do have alternative funding options, such as self-insuring or employing full or partially insured alternatives. Self-insuring removes nonprofits from unpredictable SUI tax pools, which have seen tax rates and taxable wage bases grow year after year due to high federal loan debt.

As states struggle to pay back UI debt owed to the federal government, UI tax credits for employers grow smaller each year. Nonprofits that opt out of SUI tax pools only need to reimburse the state for the actual number of claims paid to former employees. SUI tax rates rise regardless of individual employer habits. Many employers pay almost double in taxes the amount that is actually paid out to former employees as UI benefits, making self-insuring an alluring concept. With some states liable for debts of over a billion dollars, self-insuring or insured alternatives would appear to be best practice for most nonprofits.

However, self-insuring creates avoidable unprotected liabilities and can place pressure on an organization's annual fixed revenue. Nonprofits can also join unemployment trusts to mitigate some of the risk of self-insuring, but in many cases such a choice will take them right back to square one. UI group trusts often face many of the same funding challenges as state UI Trust Fund pools.

Drawbacks to group trusts

  • Group trusts are able to recoup excessive benefit costs, requiring low-turnover nonprofit agencies to bear some of the costs associated with the higher benefit payouts of other nonprofits. Just like in state pools, some nonprofits would be paying more than the their actual UI claim costs.
  • The objective of most trusts is to spread the costs of unemployment beyond high-turnover nonprofit agencies.

Private insurance options

  • Membership in private insurance is voluntary, and the risk is separable and transparent.
  • Modifications to UI contributions are related to individual member history and future expectations.
  • Nonprofits elect full, partial or modified coverage based on risk tolerance, or private group plans structured as a LLC and the only unfunded liabilities are those chosen by the nonprofit.

Content presented by First Nonprofit Companies, the leading provider of a full-range of state unemployment insurance alternatives for 501(c)(3) nonprofit employers.


Ready to chat?
Get in touch today to request a no-obligation savings evaluation.


First Nonprofit has saved us so much money over the state’s program. We had one little glitch with the state recently and we contacted FNP immediately. FNP staff called us back immediately and moved to remedy the problem.

WI Council of Religious & Independent Schools (WCRIS), Madison, WI

First Nonprofit has been a great partner. They have helped us saved hundreds of thousands of dollars! They have awesome resources for our nonprofit organization. Thanks for the partnership.

Community Care Inc., Milwaukee, WI

Life is certainly busy these days but having business partners like First Nonprofit has made some of the process hassle free. We have worked with this team for years. When we changed payroll systems, they outlined every step. I think this team is terrific and I know they get the job done! Thank you, Cruz, to all the team at FNP.

Gulfside Healthcare Services, New Port Richey, FL

FNP has helped our agency to save thousands of dollars every year on our unemployment coverage. The service is phenomenal, and we are thankful to their team as our partner. My experience working with Marshall on the advocacy around UE for nonprofits was also a highlight as someone who teaches advocacy and lobbying for nonprofits. Really, your whole team is top shelf, so thank YOU!

Advancing Academics, Turtle Creek, PA

Chicago Children’s Theatre has greatly benefited from our partnership with First Nonprofit, and I have always enjoyed working with the staff on our filings and any complicated questions. I would not hesitate to recommend First Nonprofit to fellow nonprofits. We’re very happy customers.

Chicago Children’s Theatre, Chicago, IL

FNP is a great resource for Daniel Kids. To have a TPA that we can count on to take point on not only managing our unemployment claims, but to support and guide any protest hearing, is invaluable. All the professional support staff we have worked with have been excellent, very knowledgeable and responsive. We are grateful for the help and support, thank you.

Daniel Kids, Jacksonville, FL

When I first began in my position at my organization, I hadn’t had experience working with a company like FNP. The staff was so patient and helpful in helping to explain the benefits of First Nonprofit. Anytime I reach out with a question I receive a quick, clear, and thorough response. I’m so thankful that we decided to partner with FNP. Their excellence in customer service, coupled with their variety of packages frees us up to truly serve our staff and community with a peace of mind knowing that our organization is protected against unanticipated unemployment insurance expenses.

Homes of Hope, Chicago, IL

First Nonprofit gets an A+ in my book. You are so easy to work with & very knowledgeable! Whether it is my quarterly correspondence with Kim or my random interactions with Dawn about a bond … I am so pleased that I get to work with such a helpful company. Thank you!

Women's Choice Network, Pittsburgh, PA