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Account Building Component (ABC)
Unemployment insurance, like any insurance system, uses past experience to try to achieve solvency for the insurance system. In the case of unemployment insurance, the Account Building Component serves this purpose. It does this by comparing an employer's individual account (the Actual Reserve) with the statewide average UIA employer account. It then takes into consideration each employer's total payroll for the 12-month period ending the previous June 30.
Specifically, the calculation works as follows: Subtract the Actual Reserve from the Required Reserve, multiply the result by 0.50%, then divide the result by total payroll for the 12-month period ending the previous June 30.
The Actual Reserve is all the money an employer has paid in taxes to the UIA (based on the ABC and CBC components) since the business began, minus all the benefits that have been charged to the employer's account since the business began. In other words, it is the "net amount" in an employer's UIA account and may be either a positive (+) or a negative (-) number. If negative, the employer is known as a "negative balance employer."
Form UIA 1771, Tax Rate Determination for Calendar Year 20__, shows all taxes paid to the employer's account and all benefits charged against the account for the current computation period.
The Required Reserve is calculated by taking the employer's total payroll for the 12 months ending the previous June 30 and multiplying that amount by 3.75% (0.0375).
To summarize, the Account Building Component is figured like this
ABC = [(Required Reserve) - (Actual Reserve)] X .5
12 months of total payroll
The result is rounded up to the next higher one tenth of one percent (0.1%). The amount of the Account Building Component is limited and cannot exceed 3.0%.
Because the Account Building Component is rounded up, a small voluntary payment to the UIA can make a difference in the employer's tax liability. It is generally not cost-effective to use a voluntary payment to try to reduce the Account Building Component by more than 0.1%. Once made, a voluntary payment is irrevocable. If paid, it must be received by the UIA within 30 days of the mailing of the annual tax rate notice (Form UIA 1771) but in no event later than 120 days after the beginning of the calendar year. Please see the "Voluntary Payment Worksheet" later in this overview to see if a voluntary payment could benefit you.