South Carolina employers must pay a variety of taxes on employee payroll, including federal social security taxes (FICA and FUTA), and South Carolina employee income withholding taxes. While the employer is able to collect some of these taxes from the employee’s wages, other taxes (like the employer matching portion of FICA and FUTA) must come out of the employer’s pocket.
Another tax that South Carolina employers must pay is the state Unemployment Insurance Tax, or “UI Tax”. All employers that pay wages in South Carolina must file a quarterly report with the South Carolina Department of Employment and Workforce (SCDEW or DEW). This report, Form UCE-120/101, must be filed with DEW after the end of each quarter, together with payment of the employer’s applicable UI Tax.
UI Tax rates (for 2016) are based on rate classes, with 20 separate rate classes. The tax rate for rate class 1 is 0.0600% and rises up to 5.460% for employers in rate class 20. An employer’s rate class is determined by DEW each calendar year based on the employer’s history as of the preceding June. An employer’s exact rate depends on its experience with the South Carolina UI system and current economic conditions.
UI taxes are charged on the first $14,000 of wages earned by an individual Wages earned after $14,000 are not taxed. Applying a rate class, UI Tax can be as low as $8.4 per employee on wages of $14,000, but can be as high as $764.40 on the same wages.
Employers who have at least 12 months of liability experience with the state system are considered “experience-rated employers” and have their tax rates based on their benefit ratio. The benefit ratio is the total benefits charged against an employer’s account by DEW during the applicable period divided by the employer’s taxable payroll during that same period. A higher benefit ratio indicates a greater usage of the South Carolina UI system and results in a higher rate class and tax rate. Each employer’s benefit ratio is listed on the annual Notice of Contribution Rate Form which is typically mailed out by DEW at the end of each year. Employers can use that benefit ratio to find their applicable tax rate for the year using the contribution table.
DEW UI Tax rate schedules are adjusted each year based on DEW program costs that consider:
- Projected benefit costs for the year (“base rate”)
- Outstanding loans from the federal government to DEW (“base rate”)
- Interest owed to the federal government by DEW (“interest surcharge”)
UI Tax rates are set each year by DEW to fund these program costs. Each employer is also responsible for a separate “Departmental Administrative Contingency Assessment” (DACA) surcharge of 0.06 percent which is added to the base rate and interest surcharge.
UI Tax rate assignments by DEW to an employer do not have a formal appeal process; however, if an employer disagrees with any historical information contained in an annual Notice of Contribution Rate from DEW, the employer may request a review by DEW of this information within 30 days from the date on the notice.
As with any tax agency, DEW has the administrative authority to charge penalties and interest when tax reports are not filed and UI Tax is not timely paid. For late-filed quarterly reports, DEW assesses a penalty of 10% of the tax due, from $25 to $1,000. Interest is also charged by DEW, in addition to penalties, of 1% per month until paid. If an employer is audited by DEW, and DEW determines that an employer under-reported its UI Tax liability, and this understatement was due to negligence, a 10% penalty will be added. If DEW determines that any UI Tax understatement was due to fraud, a 100% penalty is charged.
DEW also has a special provision where an employer has not filed a required quarterly report for UI Tax, or if DEW has issued a tax execution to an employer for past UI Taxes due. In either case, DEW will increase the employer’s rate class to the maximum rate class 20 until the employer has filed its required reports with DEW and paid all taxes, penalties and interest required in any tax execution notice. This higher rater class will apply to all quarterly UI Tax liabilities of an employer, even those where the employer in the interim may have timely filed and paid taxes, until the prior returns are filed and all tax executions are paid.