Why you got a TWC Tax Audit

Many employers wonder why they received an investigation letter from the Texas Workforce Commission (TWC) when they had not terminated any workers. TWC Tax Audits occur to a small subset of Texas companies even though they never fired anyone. The reason for this is how TWC collects wage information from workers that file for unemployment benefits.

Unemployment Claim and the Base Period

Unemployment claims require that the worker submit information about their prior jobs in the previous year. In order for a person to receive unemployment, the applicant must show TWC that he or she qualifies for unemployment benefits. TWC evaluates unemployment benefits based on the worker’s past wages, employment history, and satisfaction of current eligibility requirements.

A base period is the first four of the last five completed calendar quarters immediately preceding the date of an initial claim for unemployment compensation.
https://twc.texas.gov/jobseekers/eligibility-benefit-amounts

TWC’s rules states “Your base period is the first four of the last five completed calendar quarters before the effective date of your initial claim. We do not use the quarter in which you file or the quarter before that; we use the one-year period before those two quarters. The effective date is the Sunday of the week in which you apply. The chart below can help you determine your base period. If you do not have enough wages from employment in the base period, TWC cannot pay you benefits.”

Past Wages

TWC bases the unemployment benefits on the individual’s past wages. Click here for more information. For unemployment claims to be awarded correctly, TWC looks at the prior wages the worker made.

TWC Tax Audit

What this means is that you could still face a TWC Tax Audit if one of your former employee or independent contractor leaves your employment and applies for unemployment months later. A former employee or worker may file for unemployment benefits after being laid off from a subsequent employer. Even if you did not terminate anyone, someone that leaves your employment may go work for someone else and gets laid off. As long as they list you as an employer during the base period, your business could be flagged for a TWC tax audit for failing to pay unemployment taxes. TWC will make the reasonable assumption that you had failed to pay unemployment taxes on a employee misclassified as an independent contractor to avoid paying taxes.

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