How It Works

Most businesses are required to pay for unemployment claims. But unlike for-profit businesses, 501(c)(3) nonprofits have options to help us strategically manage these payouts and reduce the cost on unemployment insurance in our budgets.

Nonprofits can pay for unemployment claims just like for-profits through our state’s unemployment insurance tax; or we can become a reimbursing employer and pay the state only for claims paid out to our former employees. If a nonprofit decides to reimburse, we can end up paying substantially less than if we just paid the state tax.

How Unemployment Taxes Work

Each state maintains an unemployment pool that employers pay into on a per-employee basis based on their state’s taxable wage base and their individual tax rate (based on claims history and other factors). Money in the pool is combined and used to pay all employer unemployment claims in the state. Nonprofit employers generally have lower staff turnover, so we end up subsidizing the higher cost of for-profit employers in the pool.

Traditionally, it is estimated that nonprofits pay $2 into the unemployment pool for every $1 we end up paying in unemployment claims and as a result lose tens of thousands of dollars from our budgets every year.

How the Nonprofit Unemployment Insurance Tax Advantage Works

In 1972 a new section (Section 3309a) was added to the Federal Unemployment Tax Act as contained in the Internal Revenue Code. It states that state unemployment programs must allow 501(c)(3)s to elect whether (a) to contribute to the state program in accordance with state law or (b) to pay into the state program annually an amount equal to the actual unemployment benefits paid out by the state program on account of employment services previously provided to the organization.

In short, nonprofits have the option to only pay the unemployment claims for which we are liable – dollar for dollar.

So what does 501(c) Agencies Trust do?

Simply, 501(c) Agencies Trust is an organization that helps nonprofits handle the practice of not paying the state unemployment tax and only reimbursing for claims. We are the oldest and largest such organization in the country.

Technically, we are a grantor trust governed by a board of trustees made up of our nonprofit participants that provides the legal, financial and administrative resources necessary for us to manage our own unemployment claims process.

We provided the assistance our nonprofit organizations need to:

• Opt-out of the state unemployment insurance tax system and become reimbursing employers.

• Manage, audit and protest any unemployment claims they may face.

• Reduce layoffs and unemployment costs – thereby saving money.

Can 501(c) Agencies Trust save your organization money?

Our program can typically save organizations with over $1 million in gross annual payroll up to 40% on their state unemployment insurance. Savings are dependent upon an organization’s state tax rate and unemployment claims history.

We conduct free assessments to determine if we can save your organization money.

Click below for a free assessment to determine if your organization
will benefit from 501(c) Agencies Trust.