Over the past two years, Kermit Stone, the controller of Hilton Company, has been concerned that...

Over the past two years, Kermit Stone, the controller of Hilton Company, has been concerned that the company has been paying a large amount of money for state unemployment taxes. On reviewing the “unemployment file” with the head accountant, Deborah Murtha, he learns that the company’s tax rate is near the top of the range of the state’s experience-rating system.

After calling the local unemployment office, Stone realizes that the turnover of employees at Hilton Company has had an adverse effect on the company’s tax rates. In addition, after consulting with Murtha, he discovers that the eligibility reports that come from the state unemployment office are just signed and sent back to the state without any review.

The eligibility reports are notices that an ex-employee has filed a claim for unemployment benefits. By signing these reports “blindly,” the company, in effect, tells the state that the employee is eligible for the benefits. Any benefits paid are charged by the state against Hilton Company’s account.

Stone is convinced that the rates the company is paying are too high, and he feels that part of the reason is the “blind” signing of the eligibility reports. Besides this, he wonders what other steps the company can take to lower its contributions rate and taxes.

Submit recommendations that might help Stone reduce the “unfair” burden that the unemployment compensation taxes are leveling on Hilton Company.

Homework Answers

Answer #1

Unemployment Compensation Taxes

Unemployment Compensation Taxes are taxes that are paid when an individual pays when they receive unemployment checks from the government. The goal is to ensure that the individual treats

the income that they are receiving as taxable income, and ensure that the governments get to recoup some of the expended monies.

Recommendations that could help Stone reduce the burden include, but are not limited to, the following:

  1. Reach out to his local government to see if there is a way to lower the taxes
  2. Dedicate funds to pay for the taxes
  3. Don't hire as many employees, so they do not have to pay the unemployment compensation taxes.
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