The unemployment insurance benefits states have been providing to workers during the recession are likely to haunt businesses in the form of higher unemployment insurance taxes for years to come. Such taxes have already begun to rise and are projected to rise again this year, although some states have taken steps to mitigate the increases.
Employers pay both federal and state unemployment insurance taxes. The Federal Unemployment Tax (FUTA) is nominally 6%, but it's offset by a 5.4% credit, making the effective tax rate 0.6%. That credit is reduced, though, if states have borrowed from the Federal Unemployment Account to pay benefits, as many have. The Labor Department shows that the Federal Unemployment Account was owed a total of $37.5 billion as of Jan. 12 by 27 states and the U.S. Virgin Islands, with California's $10.1 billion representing about a quarter of that debt. Other states with big IOUs include New York with $3.5 billion, Pennsylvania with $3.3 billion and North Carolina with $276 billion.
If a state has had a loan outstanding for two years, its effective tax rate goes up by 0.3%, to 0.9%, and for every additional year, the rate goes up another 0.3%.
Continue Reading for Free
Register and gain access to:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.