As we move into 2024, 501(c)(3) nonprofit organizations in Oregon are facing a significant change in the State Unemployment Tax Act (SUTA) structure. The increase in the taxable wage base presents both a challenge and an opportunity for strategic financial planning. Understanding these changes and exploring effective cost-management strategies, like opting for a reimbursement plan, is crucial for nonprofit leaders aiming to safeguard their financial stability and continue their impactful work.
Unpacking Oregon’s 2024 SUTA Tax Changes
For Oregon’s nonprofits, a notable SUTA update is on the horizon:
- Taxable Wage Base Increase: The taxable wage base in Oregon is set to rise to $52,800, marking a 3.7% increase from the previous $50,900. This change implies that nonprofit employers will incur SUTA taxes on a higher portion of each employee’s wages.
- Rate Schedule Increase: Additionally, the state announced that their tax rate schedule will move from Schedule II to Schedule III, which is a higher tax rate schedule for 2024. Based on Schedule III, tax rates will range from 0.9% to 5.4% with a new employer rate of 2.4%.
These increases were driven by wage growth in 2022, which led to higher weekly benefit payouts in 2023.
The Impact on Nonprofits
This change brings with it several key implications:
- Increased Financial Burden: The higher wage base directly translates to increased SUTA tax liabilities, potentially straining the financial resources of many nonprofits.
- Need for Budgetary Adjustments: Organizations will need to reassess their financial plans and budgets to accommodate the increased tax expenses without compromising their mission-driven activities.
Exploring the Reimbursement Option
In response to the rising SUTA taxes, Oregon 501(c)(3) nonprofits have the option to become reimbursing employers. This alternative approach offers distinct advantages:
- Direct Cost Control: Reimbursement plans allow nonprofits to pay for unemployment claims directly, instead of contributing based on the total wage base. This means paying only for actual unemployment benefits claimed by former employees.
- Potential for Lower Expenses: For organizations with low turnover rates and minimal unemployment claims, reimbursement can be a cost-effective solution. By avoiding the higher tax rates associated with the increased wage base, nonprofits may find significant savings.
- Enhanced Financial Predictability: Opting for a reimbursement plan can lead to more accurate financial forecasting. Nonprofits can plan for actual costs related to unemployment claims, rather than estimating taxes that may not reflect their actual experience.
Oregon employers have until January 31, 2024, to notify the state of their decision to reimburse rather than pay SUTA in 2024.
Considerations for the Reimbursement Method
Before transitioning to a reimbursement plan, it’s crucial to consider:
- Financial Stability: Ensure your organization has the financial capability to cover potential large or unexpected claims.
- Administrative Capacity: Be prepared to handle the administrative aspects of managing and reimbursing unemployment claims, including tracking claims and processing payments.
- Risk Assessment: Evaluate how the reimbursement method aligns with your organization’s overall risk management strategy.
As Oregon’s SUTA wage base increases in 2024, it’s vital for 501(c)(3) nonprofit executives to stay informed and explore all options for managing rising costs. The reimbursement method presents an opportunity for more controlled and potentially reduced unemployment tax expenditures. However, each nonprofit’s situation is unique, and consulting with a financial advisor is key to determining the best approach for your organization’s needs. With thoughtful planning and strategic decision-making, your nonprofit can effectively navigate these tax changes and continue its crucial work in the community.
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.
Contact us today to see if your organization could benefit from our services.
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The information contained in this article is not a substitute for legal advice or counsel and has been pulled from multiple sources.