Budgeting for 2022: A Production Accountant's Guide
It’s unavoidable - production costs will increase in 2022. To help you prepare, EP’s team of payroll tax, production incentive, and business development experts explain why. Gain insight on how economic trends will impact your finances next year, learn about incentive program changes, and let our experts guide you as you work to build an accurate 2022 production budget.
Watch the Budgeting for 2022 - What Productions Need to Know webinar, on demand now.
First, let’s touch base on what tax changes you can expect to see next year.
State Tax and Workers Compensation Changes
Payroll tax expert Becky Harshberger explains that federal borrowing and depleted state trust funds will lead to higher unemployment tax rates for many states in 2022. Oregon and North Carolina won't adjust rates because both have healthy trust funds. However, most other states are likely to do one of two things. They’ll either raise state unemployment insurance tax rates, known as SUTA or SUI, or they’ll issue a special tax assessment.
Each state sets its own SUTA rate, announced publicly via a tax notice. A special tax assessment is a flat fee increase that lasts until the state builds its trust fund back up. To give you an idea of what that can look like - New York issued a $12.75 per-employee fee after the great recession that tapered off over three years.
According to business development expert, Steve Wegner, state workman's comp rates will also increase moderately next year.
As states continue to issue notices in the coming weeks, we'll have more details on what rates will be and how these increases will impact your 2022 payroll.
Federal Tax Changes
A handful of states with depleted trust funds defaulted on federal advance loans they used to pay unemployment claims during the pandemic. These states elected not to use COVID relief program funds issued by the American Rescue Plan Act (ARPA) to repay their loans. When states default on federal unemployment loans, federal unemployment tax (FUTA) rates go up.
Based on how states are faring right now, Harshberger confidently predicts that California, Colorado, Connecticut, Illinois, Minnesota, New Jersey, New York, Pennsylvania, and the Virgin Islands will increase federal unemployment tax in 2022. Rates will increase by $21 per employee in these states, meaning employers' costs will rise from $42 to $63. The Virgin Islands are still paying off borrowing from the great recession, so their federal unemployment will increase to $252 per employee.
Additionally, the federal social security wage base is rising from $142,800 to $147,000, and employer match will increase from $8,854.60 to $9,114.
Now, let’s discuss how general economic trends are affecting productions.
The Impact of Inflation
The annual US inflation rate hit 6.8% in November of 2021 - the highest we've seen since June 1982. As a result, food, gas, and lodging have all become more expensive, and material costs skyrocketed in large part due to serious supply chain issues. Unfortunately, we expect this rate to continue to climb, albeit slowly, as we head into the new year.
With that in mind, make sure your 2022 production budget allows you to absorb higher costs across the board. You can achieve this by including a percentage-based inflation buffer for line items subject to heavy fluctuation - like food. For example, Wegner suggests budgeting $1.50 to $2.00 more per plate to account for added costs you’ll face to feed your cast and crew.
The Ongoing Cost of Covid
Over the last two years, most productions spent 10-15% of their budget on COVID safety protocols - and a handful spent as much as 25%. The California Film Commission (CFC) reports that most of the state’s productions spent about 5% of their total film budget on COVID safety.
Labor costs account for 40% of all COVID compliance expenses - including salaries for safety officers, testers, drivers, location assistants, and medical personnel. The other 60% goes towards goods and materials, including outside testing vendors, plexiglass, sanitizing materials, face masks or shields, and quarantine stipends. Harshberger notes that all stipends are taxable and must be reported on W2s, so be sure to keep that in mind.
Considering inflation and the fact that the pandemic is wildly unpredictable, we suggest playing it safe by earmarking 10-15% of your total production budget for COVID compliance expenses. In the panel discussion, Wegner notes that taking a few extra seconds to add a specific tag to COVID-related line items in your budgeting software can be a smart move. Then, you can use the tag to easily run detailed cost reports.
Now that we have covered what’s changing when it comes to expenses, let’s talk incentives.
2021 Incentive Program Updates
Here are a few key incentive program changes that happened in 2021.
- Attractive Location Opportunities
Production incentive expert, Joseph Chianese, encourages production teams to add North Carolina to their shortlist of potential 2022 filming locations. He says, “North Carolina reduced minimum spend requirements for tv and movie projects and increased their spend caps. [Their program] gives you residence and non-residence above and below the line, and they have close to $30 million in available funding.”
Chianese also mentions Kentucky as an attractive option. The state has $75 million in funding available, has a $250,000 minimum spend threshold, and is offering a refundable 30-35% tax credit effective January 1, 2022. Nebraska also has a new 20% grant.
Internationally, Bulgaria is offering a 25% incentive, and Cypress increased their incentive from 35% to 40%.
- Three States Face Loan Out Changes
Georgia is discussing how loan outs will be handled in 2022 and has indicated that ‘hold days’ will not qualify for the incentive. Additionally, indirect taxes are impacting actor loan outs in New Mexico and Hawaii. If you plan to film in any of these locations, contact EP for details on how these adjustments affect your budget.
- California Tax Incentive Update
California’s Basics 3.0 tax incentive program hasn’t undergone any major changes, but it did get some major funding. In July 2021, a legislative bill added $180 million to the program - $90 million for the 2021-2022 fiscal year and $90 million for the following year. This bill also allocated $150 million to be used for renovating existing and building new California stages. In total, California currently has $660 million in available funding.
Production teams wanting to take advantage of this program need to be aware of the calendar. There are several application deadlines throughout the year, and each one is specific to a certain type of project (independent film, feature film, TV, etc.). If you miss an application window, you have to wait until the next one to be considered for funding. You can see a list of deadlines on the California Film Commission website.
Legislative sessions are starting soon, which may lead to more incentive program changes coming down the pike. Sign up for the EP incentives newsletter to stay up to date, and use the EP incentive website as your trusted resource for domestic and international program details.
Preparing for a Profitable 2022
2022 promises to bring higher federal and state unemployment tax rates, ongoing COVID safety protocol costs, and persistently rising inflation. With that in mind, production accounts should be prepared to spend 10-15% more on 2022 productions.
Plan your budget accordingly, and keep an eye on the EP blog and incentives website for updates. We'll also be releasing our 2022 paymaster guide early next year, so stay tuned! In the meantime, contact EP if you have questions on rates, incentive programs, budget guidance, or payroll tax.