Another Rise in Unemployment Costs

11.15.2011
Issues & Policies

Most Connecticut businesses are all too aware of the rise in unemployment taxes due to the costs of extended benefits during and after the recent recession.

In the most recent stage of expected unemployment compensation tax increases, the U.S. Department of Labor recently approved a reduction in the credit against theĀ Federal Unemployment Tax Act (FUTA) tax.

The FUTA tax rate is 6.0% on the first $7,000 of wages per worker. Employers usually get a credit of 5.4%, so they pay a net tax of 0.6%. (before June 30 the net tax was 6.2% minus 5.4% for a net of 0.8%)

However, a 0.3% reduction in the credit was approved on Nov. 10, based on state unemployment loan balances. (To continue paying unemployment benefits, Connecticut has borrowed an estimated $810 million from the federal government.)

The longer a state owes principal on outstanding federal unemployment loans, the FUTA tax credit will continue to decrease by 0.3% each year.

Employers in Connecticut will first see a reduction in their FUTA credit from 5.4% to 5.1%, which means a net tax of 0.9%.

Connecticut is one of 19 states with a credit reduction of 0.3%, including Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Virgin Islands and Wisconsin.

FUTA covers the costs of administering the UI and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

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