The overarching theme of the recent fiscal cliff discussion is taxing. Tax rates have been at the center of talks, and while personal income has been the most publicized and politicized tax rate in particular, employers in several states are more worried about potential increases in the federal unemployment tax (FUTA).
State debt behind increase
Employers in 18 states could pay more in unemployment taxes when they file 2012 returns on January 31, 2013. Currently, the FUTA tax rate is 6 percent and applies to the first $7,000 businesses pay their employees as wages during the year. Employers, however, are granted a credit against FUTA, which at the maximum is 5.4 percent of FUTA taxable wages. The FUTA rate for many employers is then 0.6 percent. Yet many more will see an increase in 2013 without Congressional action.
Businesses in those 18 states may be subject to increased FUTA rates because of their states' debt to the federal government. When states default on paying federal unemployment insurance loans, the credit allowed to their employers goes down 0.3 percent with the second consecutive year the state owes funds, and continues with each successive year.
The Department of Labors has determined 19 such states fall under that category and will have increased FUTA rates for employers. Businesses in Arizona, Delaware and Vermont will pay a total rate of 0.9 percent. Employers in Arkansas, California, Connecticut, Florida, Georgia, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island and Wisconsin have a total rate of 1.2 percent; and those in Indiana are subject to a rate of 1.5 percent. Employers in the Virgin Islands will pay a total of 1.5 percent.
Businesses look to Congress for action
In response to the increased taxes many employers will pay, a business coalition wrote a letter to Congress to help raise awareness on Capitol Hill of the increasing FUTA rates.
The letter said that in addition to the employers in 18 states that will be subject to higher FUTA rates, businesses in Colorado, Idaho, Illinois, Michigan, Pennsylvania and Texas are already paying, or will start paying, billions in assessments to help states clear federal debt.
The collation called for Congress to stop any further increases in FUTA tax rates and urged it to grant states more flexibility in tackling state unemployment trust fund solvency.