Reserve Ratio

A Reserve Ratio compares the size of your Reserve to the size of your work force.

Your taxes add to your Reserve. Benefits charged against you detract from it. The difference is your Reserve Account Balance. (It's only on paper; there is no money sitting in an account; and you will never see the money again.)

The state wants this Reserve to contain so many dollars per employee. So they average your taxable wages, usually over three years, and divide the average annual taxable wages into your Reserve. The resulting percentage is called your Reserve Ratio.

This Ratio is then applied to a table to determine your tax rate.

Reserve Ratio is far and away the most popular way of computing tax rates, because it ensures the state does not have to put the money up front to pay claims. You pay up front. It is essentially a checking account, where you deposit the money, but the state writes out the checks.

Reserve Ratio states usually allow a Voluntary Contribution, whereby you can actually BUY yourself a better rate! Be sure to read about the Voluntary Contribution here.