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Human Cost

Dodging unemployment taxes is a risky business.

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This story appears in the November 2005 issue of Entrepreneur. Subscribe »

Don't be tempted to avoid paying state taxes: A year-old federal law gives state officials the right to seek unpaid taxes and impose penalties on companies that avoid unemployment taxes, a maneuver that's been dubbed "SUTA (state unemployment tax acts) dumping." These taxes are used to state trust funds that pay benefits to workers who lose their jobs.

The law eliminated some of the most flagrant SUTA-dumping techniques, such as creating a shell corporation to wipe out a company's high unemployment experience rating. Current law says a company's unemployment experience rating, which is based on the number of unemployed workers the company has created in the past, must be transferred when employees move from one to another owned or controlled by the same employer.

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