How to protect your TWC tax rate from chargebacks

Despite the current labor shortage, some employers may be suffering the lingering effects of increased unemployment claims from prior years. Texas Workforce Commission (TWC) unemployment chargebacks can affect an employer’s tax rate for years to come. Here’s how to contest them.

Chargeback basics

Employers pay state unemployment insurance taxes to the TWC as contributions to unemployment benefits. Taxed employers pay the taxes quarterly. When an employee’s job is terminated, they can apply for unemployment benefits.

When unemployment benefits are paid, the amount of the unemployment claim is charged back to the claimant’s previous employers for purposes of determining how much unemployment taxes the employer should pay in the future. Just as car accidents drive up car insurance rates, the more unemployment claims charged back to an employer, the more unemployment tax the employer owes moving forward. Although unemployment tax rates change year to year due to a variety of factors, the average employer has a tax rate between 1.25% and 1.5%.

Unemployment benefits are charged back to base-period employers. The base period consists of a one-year period a year and a half before the claim was filed. If there are multiple base-period employers, the amount of each employer’s chargeback is based on the base-period wages it paid during the period.