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Employers deserve credit for early repayment of UI debt

Governor Jay Nixon announced this week that a debt to the federal government for unemployment benefits would be repaid about a year earlier than expected.  The governor’s statement is based on a projection by the Missouri Department of Labor using data from the U.S. Department of Labor.  AIM president Ray McCarty credits employers for this great new development.

The federal debt resulted from high unemployment during the recent deep recession.  During periods of high unemployment, more people receive unemployment benefits at the same time employers are paying lower taxes into the unemployment fund because the taxes are based on a percentage of payroll.  In Missouri and many other states unemployment benefits were paid to workers through loans from the federal government.  These loans are repaid by employers through mandatory higher federal unemployment taxes.

Employers were scheduled to pay $126 per employee earning at least $7,000 per year for the 2014 federal unemployment taxes that will be due in January 2015.  Because employers paid dramatically higher federal taxes in 2012, 2013 and 2014, and because the unemployment rate has been dropping, the amount employers will have to pay in federal unemployment taxes in January 2015 will drop to $42 per employee.  This is the minimum amount of federal tax and should be the amount going forward, barring any further borrowing from the federal government.

For the last several years, discussions at the Missouri State Unemployment Council (MOSUC – we did not make that up) have included suggestions that employers needed to pay higher state unemployment taxes to guard against borrowing from the federal government during downturns in the state economy.  Associated Industries of Missouri argued against higher state taxes, claiming the current rates of tax were sufficient to provide benefits through normal times.

“This new development proves that we were right in holding the line on state unemployment taxes,” said Ray McCarty, president of Associated Industries of Missouri. “The worst thing we could have done for Missouri employers would have been to increase state unemployment taxes permanently, giving the state a large balance in the state unemployment trust fund.  The current rates of tax are appropriate and should result in a healthy fund so we are better prepared for the next recession, which we hope is many years away,” said McCarty.

McCarty cautions this new development is based on a projection that is subject to change if the unemployment rate increases or if total payroll wages are reduced. “But this is very good news and employers deserve the credit for holding the line against permanent tax increases,” said McCarty.

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