The national unemployment rate is currently 9.8%. The number of individuals claiming unemployment has placed a substantial strain on state unemployment trust funds. In January 2008 the national unemployment rate was 4.9%. Unemployment benefit payments have more than doubled while tax revenues have decreased. Given this scenario, many states are finding it difficult to maintain solvent trust fund balances and have been forced to take Federal Title XII loans. In response to the current economic situation, states have passed legislation to increase tax revenues to replenish depleted trust fund balances.

The following states have passed legislation in order to boost revenues:

Florida – SB 810 increases the taxable wage base from $7,000 to $8,500 for tax years 2010 through 2014 and changes the rules for calculating the final and variable adjustment factors used in tax rate calculations.

Indiana – HB 1379 increases the taxable wage base from $7,000 to $9,500 and institutes a new set of rate schedules to be used beginning in 2010. The penalty rate has also increased from 5.6% to 12.0% in 2010.

New Hampshire – SB 129/LSR 998 increases the taxable wage base from $8,000 to $10,000 for 2010, $12,000 for 2011 and $14,000 for 2012 and beyond. In addition, another 0.5% surcharge, on top of the 0.5% mentioned below, will be added to all employers’ rates and a 1.5% fund balance increase will be added to all negative balanced employers’ rates effective for at least the first and second quarters, 2010.
Due to a low state trust fund balance, an emergency 0.5% unemployment tax surcharge will be applied for the remainder of 2009.

South Dakota – Due to a low state trust fund balance, an emergency 1.5% unemployment tax surcharge will be applied to employers on taxable wages paid 10?1?09 through 12?31?09. This surcharge is expected to remain in effect through at least the second quarter, 2010.

Tennessee – HB 2324/SB 2315 increased the taxable wage base from $7,000 to $9,000 retroactive to January 1, 2009 and increased unemployment tax rates by 0.6% effective January 1, 2009. The 0.6% increase is expected to remain in effect through at least the second quarter, 2010.

Vermont – HB 442 increased the taxable wage base from $8,000 to $10,000 for tax year 2010.

West Virginia – SB 246 increased the taxable wage base from $8,000 to $12,000 effective second quarter, 2009.

TALX has a team dedicated to track and monitor pending and new unemployment tax legislation. Our tax experts can assess how legislative activity will impact unemployment taxes. Employers who are forecasting the impact of legislative changes on 2010 unemployment costs will avoid unexpected tax increases and budget variances throughout the coming year.

We recently held a Webcast where we had some experts talk about the impact the current recession is going to have on employer's taxes next year and in to the future. It also addressed the solvency of the trust funds in many states and talked about legislation that may have some impact. If you're interested in hearing the presentation, we have it available at the following link. The title is "Unemployment Taxes-An Emerging Crisis?" 

http://www.talx.com/News/IndustryInsights/index.asp

Pat Powell

This past April, we discussed the fact that 14 states were borrowing funds from the federal government in order to pay unemployment benefits. At the present time there are 18 states who have borrowed $13,576,707,278.17. The state of MN has repaid their outstanding loan, while the states of FL, ID and RI have recently had to borrow federal dollars to keep their trust funds solvent. Currently the federal unemployment fund has $4,950,229,197 in its coffers.

There are signs that things are starting to turn around. For example, In July, employers took 2,157 mass layoff actions involving 206,791 workers. The number of mass layoff events decreased by 606 and the number of initial claims decreased by 72,440 from the prior month. These seem to be positive signs.

However the true marker for the "bottom" in the unemployment area will be when monthly new claim filings drop to below 400,000 per month. Another positive indicator that employment has begun to stabilize will be when consumer spending starts to increase.

We will continue to monitor the economic indicators and report accordingly.

As unemployment rates continue to rise and state trust fund balances are depleted, the state agencies must look for ways to increase unemployment tax revenues. Along with raising the tax rates, many states will increase the taxable wage base.

Looking forward to 2010, at least thirty (30) states are expected to increase their taxable wage base. Six (6) states have already passed legislation to increase the wage base and five (5) others have legislation pending. The remaining nineteen (19) have automatic escalators that trigger an increase when the trust fund balance falls below a certain level. At this point in time, it is anticipated that the trust fund balances will cause an increase to the wage base.

Of the remaining twenty three (23) states, twenty (20) of them would have to enact legislation in order to increase the wage base. Nothing has been introduced at this time. The remaining three (3) do have automatic escalators, but the trust fund balances have yet to be determined.

In an economic situation such as this, the last thing an employer needs is an increase in taxes. That however is what employers will see in at least thirty (30) states.

We are monitoring the economic situation of each state to determine the potential impact it may have on our employers

Employers who would like help in budgeting for 2010 should contact Pete Krieshok at (314) 214-7325 or by email at pkrieshok@talx.com

TALX recently held a webcast regarding the impact of the current recession on federal and state unemployment taxes and what employers should expect in 2009 and future years. TALX provided a national economic update on state unemployment trust fund solvency, individual state unemployment rates and impacts on 2009/2010 FUTA taxes. The implications of the American Recovery and Reinvestment Act of 2009 as well as insight regarding budgeting considerations for FUTA and SUI were discussed as well.

The upshot of this discussion is that currently 14 states have requested Title XII loans from the federal government. If they are not repaid within established time frames, those states will lose their FUTA credit, thus increasing employers’ federal taxes. Virtually all states have seen dramatic drops in their trust fund balances which will cause state unemployment rates to increase. Couple this with individual employer claim and benefit charge activity, many employers could be facing significantly higher unemployment tax rates in 2010 and beyond.

TALX has traditionally performed tax rate projections for interested employers. However, an even more robust forecasting tool has been created that will provide an employer with more information with which to make informed decisions regarding unemployment taxes. For more information on the enhanced forecasting tools, please contact Pete Kreishok at 314.214.7325 or via email at pkrieshok@talx.com

The current economic recession is sending more and more companies into financial crisis. The number of businesses filing for bankruptcy protection is at its highest level in over two years.

According to the AACER (Automated Access to Court Electronic Records) there were 7,843 commercial bankruptcy filings during the month of March. This was up 23% from February. It is also the highest monthly total of business filings since 2006.

Other data from the AACER showed that in the first quarter of this year 20,251 businesses sought either Chapter 7 or Chapter 11 protection; a 52.4% increase over the 13,291 business bankruptcy filings during the same period last year.

Bankrupt employers, trustees and anyone considering purchasing bankrupt businesses may have specific procedural requirements to insulate themselves from additional employer liabilities.

Pat Powell

TALX has received information from the WORKFORCE West Virginia, that the unemployment taxable wage base will be increasing from $8,000 to $12,000 effective with the second quarter, 2009.

West Virginia Senate Bill 246 was passed on April 11, 2009 and the wage base change became effective with this passage. The state will be issuing a letter to employers in the near future. They have already contacted a few of the larger payroll providers.

It is highly unusual to have a wage base change in the middle of the year; credit these unusual economic times. Employers will need to immediately change their payroll systems to reflect the new wage base. Employers will not be required to file amended first quarter returns as the change was not effective until after the first quarter ended. However, employees who met the first quarter wage base of $8,000 will now be subject to tax on the next $4,000 of taxable wages.

Pat Powell

According to the Bureau of Labor Statistics employers took 2,933 mass layoff actions involving 299,388 workers in March. These are the highest levels on record. Mass layoff events increased by 164 from February and initial claims increased by 3,911. Twenty-six states reached program highs for March in terms of average weekly initial claims.

These types of unemployment numbers are taking their toll on the state trust fund balances. As of April 23, 14 states have borrowed money from the Federal Unemployment Fund. The outstanding loan balance is currently over $9.7 billion.

Both California and Michigan have already borrowed over $2 billion each. This is the first time since 1983 that any state has borrowed over $2 billion and it’s only April.

Pat Powell

The Employer Tax Services Group will be holding webcasts on May 6 & 7, 2009. These webcasts will focus on the impact of the recession on unemployment taxes for 2009 and beyond. The newly signed American Recovery & Reinvestment Act will be discussed in detail as well as Trust Fund solvency and subsequent Title XII Loans. Even though unemployment tax rates have been set for 2009, it's never too early to understand how the recession and new law changes will affect future tax payments. To attend one of the webinars, just click here.

The current state of the national economy has adversely affected every state’s trust fund balance. When it becomes apparent that the trust fund does not have adequate reserves to pay unemployment benefits, the Governor may request a loan under Title XII of the Social Security Act. If a state has an outstanding loan balance on January 1st of two consecutive years and has not repaid the balance by November 10th of the second year, employers in that state are at risk of losing a portion of their FUTA tax credit. As of April 13th there are 14 states with Title XII loan balances and there are several other states that may need to borrow in the near future. Only employers in the state of MI are at risk of losing a portion of their FUTA tax credit in 2009. However there are at least 4 additional states that are at risk of losing credits in 2010 and significantly more in 2011 and beyond based on today’s outstanding loans. It will be important to stay abreast of this situation in order to budget for these potential tax increases.

Pat Powell

This weekend I read in The Wall Street Journal (Saturday/Sunday April 4-5, 2009 edition) that U.S. employers shed 663,000 jobs in March, pushing the nation's unemployment rate to its highest level since 1983. The article further went on to discuss "The jobless rate jumped to 8.5% from 8.1% - and many forecasters expect it to top 10% by later this year. The downturn, which started in December 2007, appears to be on track to surpass the two longest recessions since the Great Depression."

Pat Powell

I read today a notice issued by the IOWA Workforce Development which outlined the online tax filing procedures for the quarterly Employer’s Contribution and Payroll Report (Form 65-5300). This will be a time saver for employer that report employment in the state. Please note, effective January 1, 2009 Iowa increased the penalties and fees for late or insufficient quarterly Employer’s Contributions and Payroll Reports.

Click here for a PDF of the notice.

Pat Powell