State to raise unemployment tax
December 8, 2010
Nevada businesses will pay
$136 million more in taxes in 2011 to try to put some cash back into the state’s Unemployment Insurance Trust Fund.
That fund, which started this recession with a balance of more than $700 million, was depleted in October 2009 by benefit payments to record numbers of out-of-work Nevadans.
Employment Security Division Administrator Cindy Jones said the state has had to borrow $579 million to cover checks for more than 100,000 people on unemployment each week.
On Tuesday, Employment Security Council approved raising the average unemployment insurance tax for businesses from
1.33 percent of wages to 2 percent.
The move will raise the average tax businesses pay the state for each worker $180 – from $353 a year to $532. In addition, those businesses pay a federal tax which will rise $21 to $77 a year – making the total average cost to business $609 a year, a 33 percent increase.
Jones said that despite the increase, she expects total borrowing from the federal government to hit $820.5 million by the end of September 2011. Without the increase, she said that total would be $136 million higher.
She said not only must the state continue borrowing, eventually it must pay the federal government back and begin to rebuild the unemployment insurance trust fund.
“We’re in a constant state of borrowing now,” she said.
Jones said if the state doesn’t raise its tax rate, the federal government will simply raise its rate and, in a way, she said, that would put more of a burden on businesses with lower wage employees. Nevada’s system, Jones said, spreads the taxes more fairly across the board.
The 2 percent is an average of the 18 different employer classes based on how much turnover they have by workers. The actual percentages charged range from a quarter-percent, the rate paid by a third of the 56,600 Nevada businesses, to 5.4 percent paid by the 7 percent with the highest turnover.
At the same time, Jones said she is waiting to see what compromise is worked out in Congress to reinstate the federally-funded benefit extensions that expired Nov. 30.
Jones said she hopes Congress extends the interest-free status for the loans the state has taken from the federal government. If not, she said the state will owe nearly $30 million in interest on its loans by next September. She has requested legislation to allow her division to charge businesses a small increase to cover interest payments if the interest-free period isn’t extended. Otherwise, she said, the money would have to come from the state’s depleted general fund.
If the overall unemployment tax rate remains at 2 percent, Jones said the state should pay it off by 2018, unless the economy slumps again.