Unemployment: Benefits Extended, Tax Increased

Congress has voted to extend federal emergency unemployment compensation (EUC) benefits and the Social Security payroll tax cutfor another two months.

Emergency unemployment benefits were to expire on Dec. 31 for approximately 160 million people.The payroll tax for employees would have risen in January to 6.2% from the current 4.2%.

The plan includes a two-month EUC extension with a continuation of provisions of up to 99 weeks in states with the highest unemployment rates. Congress will have to start the debate all over again on a longer extension of the tax cut and unemployment benefits.  

Employers Face UI Tax Increase

Because Connecticut has borrowed about $810 million in federal dollars to keep the state’s unemployment compensation system afloat, employers this year are facing an additional tax increase to pay back the loans. 

Based on the state’s loan balance, the U.S. Department of Labor is now reducing the credit against the Federal Unemployment Tax Act (FUTA) tax.

Employers in Connecticut will see a reduction in their FUTA credit this month from 5.4% to 5.1%, which means a net tax of 0.9%. If the state continues to owe principal on the outstanding federal loans, the FUTA tax credit will continue to decrease by 0.3% each year.

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.

For more information, contact CBIA’s Kia Murrell at 860.244.1931 or kia.murrell@cbia.com.