Obama Budget Proposal Impact on Unemployment Costs
Obama’s budget submission for Fiscal Year 2012 was released on Monday, February 14th.
In relation to unemployment taxes, the budget provides for short term relief from
interest on outstanding loans made to states for the payment of unemployment benefits.
The proposal would extend the current waiver on interest for both 2011 and 2012. The
impact of the short term interest relief is estimated to be $1.22 billion for 2011
and $1.79 billion for 2012.
proposal also delays FUTA offset credit reduction penalties scheduled for 2011 and
2012 for states with outstanding loans. This delay would result in reduced costs for
over 20 states.
item potentially having the largest impact on employers involves a proposed increase
in the FUTA taxable wage base in 2014 to $15,000. The proposed change also includes
a provision for permanent indexing of the FUTA wage base to future growth in wages.
The current FUTA wage base of 7,000 has not changed in nearly 30 years, since set
at this figure in 1983. In an effort to offset the cost related to the increase in
the taxable wage base, there is also a provision included that would reduce the FUTA
tax rate to 0.38%, which would make the net results “revenue neutral”.
existing FUTA tax formula (6.2% – 5.4% credit reduction) results in a net rate of
0.8% or $56 per employee (.008 x’s $7,000) for individuals with earnings that reach
or exceed the FUTA wage base. The new formula (.0038 x’s $15,000) would result in
a per employee cost of $57. The immediate net change would be minimal, if all provisions
are kept intact. However, should the proposed increase go into effect without the
corresponding reduction in the FUTA tax rate, the federal tax per employee would increase
it appears the initial impact at the federal level could be small, the impact to employers
at the state level could be significant. The change in the federal taxable wage base
would most likely result in individual states following suit and increasing their
wage bases to match the proposed new federal base. In 2011, there are 34 states with
taxable wage bases below the proposed $15,000 figure.
following is an example of the potential impact on an employer, at the state level,
should these states be required to make the same change. For an employer with an unemployment
tax rate of 4.0% in a state with a $7,000 taxable wage base, such as California, should
the state taxable wage base be raised to $15,000, the cost per employee would increase
from $280 to $600. And – this figure will continue to rise each year as the states
keep pace with annual increases in the federal wage base due to indexing.
state taxable wage bases would enable states to successfully replenish their trust
funds more quickly, but the additional cost to employers would be substantial.
continue to provide updates as details become available.
This weblog is sponsored by TALX.
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