Kentucky businesses to start paying more unemployment taxes;
Many Kentucky businesses will be paying higher unemployment insurance taxes in the years ahead as the state repays hundreds of millions in federal loans.
The Federal Unemployment Tax Act credit decreased this year due to an outstanding balance on money loaned by the federal government to shore up Kentucky’s Unemployment Insurance Trust Fund during the recession.
Kentucky has borrowed about $950 million from the federal government since 2009 to continue paying unemployment benefits after the trust fund was depleted. After two years, the FUTA credit decreases 0.3 percent every year a balance on the loan remains, said Kentucky Chamber of Commerce Vice President of Public Affairs Bryan Sunderland.
Kentucky isn’t alone. Nineteen states, including California, Florida, Georgia, New York and Ohio, have seen their FUTA credits drop this year as well.
This year, Kentucky businesses will be paying 1.5 percent in federal unemployment taxes on employees’ first $7,000 in taxable wages, up from the normal 0.8 percent. That equals about $21 more in federal unemployment taxes per employee, Sunderland said.
That coincides with an increase in the taxable wage base at the state level, part of a plan approved by the General Assembly in 2010 to repay the federal loan, Sunderland said.
Employers now pay unemployment taxes on the first $9,300 in taxable wages at the state level, and the plan calls for gradually increasing the wage base to $12,000 by 2022. It also offers reduced unemployment benefits and mandates a one-week waiting period before benefits are paid.
If the state had not taken those measures, Kentucky employers would have lost some $600 million in federal tax credits, Sunderland said.
“Employers are getting hit with a double whammy, so to speak, on unemployment insurance,” Sunderland said, “but the increases are far less dramatic than what would’ve been anticipated had the General Assembly not stepped in in the last few sessions and come up with a plan to pay this back.”
The state has paid the loan amount down to $837.7 million. The FUTA credit reduction accounted for $31 million, and the state has made $80 million in payments since Oct. 5, Education and Workforce Development Cabinet spokeswoman Cathy Lindsey said.
The state expects to repay the loan by 2017, she said. Once that happens, the full FUTA credit will be restored.
With employment growing 1.5 percent in 2012 and the taxable wage increasing, Lindsey said the Unemployment Insurance Trust Fund is showing progress.
“We’re getting more of an influx, but also we’re taking the money that’s coming in now and paying back on our loan as much as we can,” Lindsey said, noting the state is paying back the loan at a faster pace than anticipated.
Unemployment claims are also dropping. Kentucky paid $1.8 billion in unemployment benefits in 2009 and again in 2010. Last year, the state paid $968 million in benefits.
Some business owners may be troubled at the additional tax burden, but Sunderland said the alternative – a monumental tax increase – would have been much worse.
“I’m absolutely certain we’re hearing from our members that it’s troubling to have those additional costs on them, but they understand that this is a far preferable situation to what we were facing had the automatic federal tax increases kicked in.”
By Kevin Wheatley
The State Journal