For nonprofit executives, the shifting sands of state tax laws require a vigilant eye and a prepared mind. As we look to 2024, those at the helm of 501(c)(3) organizations in Hawai’i are facing significant changes in the realm of State Unemployment Tax Act (SUTA) taxes. Understanding these changes and the strategic options available is not just prudent—it’s crucial for the financial health of your nonprofit. This article unpacks the impending SUTA tax changes in Hawai’i and discusses the merits of reimbursement strategies to cope with rising costs.
Hawai’i’s SUTA Tax Landscape in 2024
Hawai’i is set for a substantial increase in its SUTA taxable wage base:
- Taxable Wage Base Increase: In 2024, Hawai’i’s taxable wage base for SUTA will leap to $61,800—this represents a noteworthy rise from the $56,700 mark in 2023.
Impact on Nonprofits in Hawai’i
This increase is more than a line-item adjustment; it’s a significant shift that will affect nonprofits across the state:
- Elevated Tax Commitment: With the wage base rising, 501(c)(3) organizations will encounter increased SUTA tax obligations. This means that for each employee, the first $61,800 of their income is subject to SUTA taxes, up from $56,700.
- Necessity for Fiscal Adjustment: This uptick will undoubtedly necessitate a review and adjustment of your nonprofit’s financial strategies and budget planning to account for the potential increase in SUTA tax expenses.
Exploring the Reimbursement Option
Against the backdrop of these tax base increases, there lies a strategic option that may provide fiscal relief: opting for a reimbursing unemployment plan.
- Customized Cost Management: By choosing to reimburse the state for unemployment claims, your nonprofit pays only for the actual claims made by former employees, rather than pre-paying estimated taxes. This can be particularly advantageous for organizations with low turnover rates and a stable workforce.
- Potential Cost Reduction: Organizations with fewer claims may find that reimbursement results in lower overall costs when compared to paying standard SUTA tax rates on the higher wage base.
- Improved Financial Oversight: This method also offers nonprofits a clearer picture of their financial liabilities. Each claim can be monitored, managed, and accounted for, providing a transparent view of your organization’s unemployment costs.
Hawai’i employers have until December 1, 2023, to notify the state of their decision to reimburse rather than pay SUTA in 2024.
Before transitioning to a reimbursement plan, there are a few considerations to keep in mind:
- Cash Flow Implications: Ensure that your organization has sufficient cash flow to cover reimbursement claims, which can be variable and sometimes unpredictable.
- Administrative Capacity: Assess whether your nonprofit has the administrative capability to handle the reimbursement process, which includes detailed record-keeping and coordination with the state’s unemployment office.
- Risk Management: Consider the potential risk exposure and whether it aligns with your nonprofit’s risk management strategies.
The increase in Hawai’i’s SUTA taxable wage base for 2024 is an impending change that requires attention and action from nonprofit leaders. By exploring and possibly opting for a reimbursing unemployment method, your organization can take a proactive stance in managing rising SUTA tax costs. As always, it is advisable to consult with a financial advisor to ensure that the decision aligns with your nonprofit’s financial health and operational capabilities. By staying informed and prepared, you can lead your organization through these fiscal changes with confidence and foresight.
501(c) Services has more than 40 years of experience helping nonprofits with unemployment outsourcing, reimbursing, and HR services. Two of our most popular programs are the 501(c) Agencies Trust and 501(c) HR Services. We understand the importance of compliance and accuracy and are committed to providing our clients with customized plans that fit their needs.
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(Photo credit: Troy Squillaci)
The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.