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The Importance of POA for Tax Rates

August 18, 2022 by John Baumgartner

If you currently or have in the past utilized the services of a third-party agent (TPA), you may have been asked to sign documents called Powers of Attorney (POA). The POA enables the TPA to act on your behalf for a specific purpose. When it comes to Unemployment Compensation, employers sign agreements with Experian Employer Services to act on their behalf for the administration of their unemployment claims as well as the reconciliation of their tax accounts. Subsequently, Experian will ask employers to sign POA documents to enable us to act on their behalf for all unemployment matters.

A major component of this administration lies with the claims portion of unemployment. The day-to-day workload associated with this process can be extremely cumbersome and time-consuming which is one of the reasons employers outsource this function. But another aspect of the administration of employers’ unemployment accounts is the reconciliation of tax accounts. Every year, state unemployment agencies calculate tax rates for employers doing business in their state. Tax rates are calculated based on certain employer reported figures in conjunction with state-mandated tables. So there is a wide margin for error which requires a keen eye to detect. If your TPA does not have POA, the opportunity to protest errors discovered does not exist.

For the purpose of illustration, let’s assume an employer is assigned a tax rate of 4.70%. Employers must pay taxes on a certain amount of earnings for each employee every year. In our example, we will use a previous taxable wage base for New York which was $11,400 for 2019. If the employer above has 500 employees in the state, that would be $5.7 MM in taxable payroll, assuming everyone reaches the wage limit. Multiplying that figure by 4.70%, the employer would pay $267,900 in unemployment tax for the year. Let’s assume further that the state unemployment agency inadvertently makes an error in the calculation of the tax rate which causes the rate to be 2.00% higher than it should be. If neither the employer nor its TPA protests the rate, it would cause the employer to incorrectly pay $110,000 in taxes.

In the previous example, if Experian is your TPA and we have POA and are also address of record, the tax analyst would easily identify the discrepancy and immediately protest the tax rate within the statutory time limits. If Experian is not the address of record but does have POA, receipt of the tax rate may be delayed but identifying and protesting the error would remain the same. Without POA, however, Experian would neither be able to protest the tax rate nor contact the state agency to discuss the details. So, a missed opportunity would create an unnecessary cost of $114,000. Imagine the impact if this were to occur in multiple states.

Employers may be concerned they will not receive all the necessary documents mailed by the state agencies: documents such as blank quarterly contribution reports or statements of account. But that concern is unwarranted when you contract with Experian. Our mail centers are focused on forwarding those documents that do not require verification by us. In addition, documents your tax analyst needs to see are quickly sent into queue for processing and review. The Tax Analyst is then able to audit the documents and contact the state unemployment agencies if necessary, so that when you receive a communication from us, it will be a full report of the validity of the document.

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