Unemployment Tax Hikes on the Horizon? What Unemployment Loans Coming Due Means for Staffing Firms
Last time updated: 13 May, 2024
Last time updated: 13 May, 2024
Last updated on May 13th, 2024 at 07:30 pm
Note: originally posted on The Staffing Stream
When the pandemic first hit the US and business as usual came to a screeching halt, unemployment soared to extreme levels. Suddenly, a significant part of the population was relying on increased unemployment benefits and for longer than the typical 26 weeks.
That extra money had to come from somewhere. And it came, and went, very quickly — leaving business owners in some areas to pick up the slack later.
After state funds were wiped out, 22 states had to rely on Title XII federal loans to borrow funds. And while the loans were initially interest-free, they began to accrue interest in September of 2021. Now, 10 states – California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania and Texas – still owe approximately $40 billion plus interest.
For staffing owners in those states, this could mean potential unemployment tax hikes. To help, we’ll take you through how the unemployment tax system works, what the coming repayments mean for your state and what you can do to prepare your staffing business.
The tax system behind unemployment funds and benefits is a two-tiered system. You have the federal tax, which funds the administration of benefits, and then a state tax, which pays the benefits issued to workers.
Typically, state funds are replenished by charging employers various amounts of unemployment taxes. The premium amounts are based on the overall health of the unemployment insurance trust fund and what is known as an “experience rate.” The experience rate is determined by factors like:
But the past two years have been anything but typical. And with state funds depleted and loans coming due, states are putting the burden on businesses to pay it back.
States will typically repay the Title XII advances by having higher unemployment taxes. Businesses will have to plan for the higher anticipated costs of unemployment taxes, and that puts the onus on businesses like staffing firms, which have already been hit hard by economic hardships due to the pandemic.
If the 10 states fail to pay back the government by November 10, 2022, the FUTA (Federal Unemployment Tax Act) tax rate will automatically increase by 0.3% for the entire calendar year. And states are also increasing their SUI (State Unemployment Insurance) rates to compensate as well. Colorado, for instance, increased their taxable wage base and increased unemployment insurance premiums in 2022.
Knowing that unemployment tax hikes are coming, particularly in the ten states mentioned above, staffing firms have a couple options to keep costs down. Here are a few things you can do to mitigate costs:
The bottom line for staffing businesses in these states is to keep diligent track of what is happening so you can prepare for potential unemployment tax hikes ahead.
The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
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