Nonprofit Cost Saving Strategies: Reimbursing vs. State Unemployment Insurance Taxes

Do you have former employees collecting unemployment benefits?  Does your nonprofit employ more than 20 employees (or at least 10)?  If so, you may be missing an opportunity to save some significant costs for your nonprofit.

In 1972, the Federal Government enacted legislation granting 501(c)(3) Nonprofit employers the right to self-fund for unemployment, rather than pay State Unemployment Insurance (SUI) taxes. Today, thousands of Nonprofits across the country utilize this little known tax break and save millions of dollars on their unemployment expenses.

Here’s how it works – rather than pay SUI taxes that cover all of their employees in case they become unemployed, Nonprofits that self-fund are only responsible for the actual benefits that their former employees collect. This self-funding strategy is also known as “Reimbursing,” and typically saves Nonprofit employers about 50% a year on their unemployment expenses.

Although understandably appealing to for-profit employers, this right to choose which unemployment option they use (SUI tax paying vs. Self-funding) is only available to 501(c)(3) Nonprofit employers.  Read more here to learn more about Self-funding and determine if it’s a potential cost-saving solution for your organization.