Businesses again must pay higher unemployment taxes

'The state is trying hard not to borrow any more.'

This year businesses will again be required to pay higher unemployment taxes, in the hopes of righting Rhode Island’s unemployment-insurance trust-fund balance. State officials estimate that the fund will be back in the black by 2015. More

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THE ECONOMY

Businesses again must pay higher unemployment taxes

'The state is trying hard not to borrow any more.'

Posted 8/27/12

This year businesses will again be required to pay higher unemployment taxes, in the hopes of righting Rhode Island’s unemployment-insurance trust-fund balance. State officials estimate that the fund will be back in the black by 2015.

The unemployment-insurance program is paid for by the State Employment Security Trust Fund and is funded by about 32,000 local employers. In March 2009, the state’s unemployment well went dry, causing officials to begin borrowing from the federal government in order to pay unemployment-insurance benefits. The request was not unusual insofar as more than 30 states asked for the same type of relief.

According to Assistant Director for Labor Market Information Robert J. Langlais, the state has borrowed a total of $566.2 million to cover its outstanding unemployment balance since March, 2009.

“The standard tax that all employers pay, in any state, is 0.6 percent. Another 0.3 percent was added in 2011, which was due in January 2012, and an additional 0.3 was added this year, due January 2013,” Langlais said. “It increases annually until the loan is repaid.”

Langlais said the money is paid back to the account on a daily basis in order to reduce the overall payment. “We have probably saved a few hundred thousand dollars this year by paying immediately,” he said.

For most employers, the 2012 taxable wage base will be $19,600, which represents 46.5 percent of the statewide average annual wage. However, for the one quarter of employers who represent the greatest users of unemployment insurance benefits – employers that have an experience rating (tax rate) of 9.79 percent – the 2012 taxable wage base will be $21,100. By adding $1,500 to the taxable wage base for this select group of employers, the state hopes to better balance contributions to usage.

The net annual federal unemployment tax (FUTA) on employers is currently 0.8 percent of the first $7,000 in wages paid to each employee; this translates to a maximum tax of $56 per employee. However, in states like Rhode Island that have had outstanding federal loans for more than two years, the FUTA tax rate has increased 0.3 percent to reach 1.1 percent. This change has increased the federal tax by up to $21 per employee. The taxes collected by the 0.3 percent added to the FUTA rate will be applied to the state’s outstanding federal UI loan balance.

“We’re trying to let employers know that Rhode Islanders owe the federal government money,” said Phil D’Ambra, chief of unemployment insurance employer tax for the R.I. Department of Labor and Training. “Currently we owe about $239 million. We are trying to use the [money] received by employers to pay the state’s unemployment claims. The state is trying hard not to borrow any more.”

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