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Account Building Component (ABC)

Account Building Component (ABC)

Unemployment insurance, like any insurance system, uses past experience to establish an employer’s tax rate.

Based on that experience, a tax rate is established for an employer. The tax rate is made up of three components which are calculated separately and then added together to make up the yearly tax rate: the Chargeable Benefits Component (CBC); the Account Building Component (ABC); and the Nonchargeable Benefits Component (NBC). 

The Account Building Component compares 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.

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).

The Account Building Component is figured like this:

ABC = [ (Required Reserve) - (Actual Reserve) ] ÷ 12 months of total payroll ending previous June 30 × 0.5

 

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.