Connecticut employers will be hit with the highest unemployment insurance tax in the country next month as the state continues to repay interest on federal loans taken out five years ago to cover jobless benefit payments, a state Department of Labor official confirmed.
The highest-in-the-nation rate is related to Connecticut labor officials, unlike those in seven other states that have similar outstanding loans, declining to seek a waiver to exempt Connecticut from an additional 0.5 percent increase in its federal unemployment tax rate that took effect for this year’s payroll period.
The increase, called a benefit cost ratio add-on, applies to any state that has had an outstanding balance owed to the federal government for five years. Connecticut, which has a $432 million balance, now falls into that category.
The add-on, as well as 0.3 percent interest rate increase tacked onto the outstanding balance each year, will cost employers $161 per worker when bills go out in late January. That figure is the highest of any state, said Carl Guzzardi, DOL’s unemployment insurance tax director.
The tax now amounts to 2.3 percent of the first $7,000 of each worker’s income for 2015.
If the loan were paid off, Connecticut employers would only have to pay a 0.6 percent tax, or $42 per employee.
By declining to seek the waiver that other states sought, Connecticut will reduce its outstanding balance by about $45 million, Guzzardi said, which means employers will pay less in the end, because interest costs escalate each year.
“Next year when we go to bill employers for interest, there will be less money to pay interest on,” Guzzardi said.
In addition, he said the state’s unemployment insurance fund has started over the past year or more to take in more revenue than it pays out in benefits. He said that bodes well for making future debt payments.
“We don’t see the [$432 million] going up,” he said. “It will continue to drop.”
The state hopes to pay off its outstanding balance by 2017, he added.
House Republican Leader Themis Klarides criticized DOL’s decision not to seek the waiver in a statement this week.
“Hidden, unexpected taxes like this one compound the problem, especially for small businesses struggling to get by,” Klarides said.
Image credit: freedigitalphotos.net
