The California state economy may be on the right track after spending some time on a significant downturn, but the Golden State has yet to leave its financial woes behind it completely, as it still owes close to $8 million to the federal government.

Last May we estimated the unemployment tax rates across the nation to increase about 10% with the taxable payroll reported by employers increasing no more than 5%.    We based our estimates on trends from past recessions and the economic advice of a slow recovery from the Great Recession.

Let’s examine what took place in 2016.   More than half the states decreased the 2016 tax rate schedules with nineteen states leaving their schedule and surcharge the same as they were in 2015.  Only five states increased their rates for 2016.   The taxable wage base; however, increased in 25 states causing the limit for each employee to increase.   Employers are rebuilding their workforce at a faster pace than expected.   The increase of employees coupled with the increase in the taxable payroll will cause employers to pay higher contributions for 2016.   The effects of these increased contributions will be cushioned by lower or equal rate schedules and surcharges.   The trust fund balances will continue to improve as we move into the 2017 tax rate year.

As of July, the fiscal states- Vermont, New Hampshire, New Jersey, and Tennessee will be issued with an effective date of July 1, 2016 – June 30, 2017.    New Hampshire has stated their rates will remain the same as they were last year with a variety of reductions quarterly.   New Hampshire is set to issue in August.   Vermont and Tennessee have not released their rate information as of today.    The trust fund balances in both states appear favorable.  New Jersey announced a reduced rate Schedule D will be in place for the 2016/2017 rate year.    The new employer rate will reduce to 3.1%.   New Jersey is the only fiscal state that allows voluntary contributions.    The deadline to submit the voluntary contribution is thirty days from the date of issuance on the tax rate notice.

Over forty agencies have a computation date that ends June 30, 2016.  For reserve ratio states, a review of all past contributions less all past benefit charges results in the ending balance which is then divided by a taxable payroll.  The reserve ratio is found a chart which determines the unemployment tax rate.    The benefit charge computation reviews either three, four, or five years of benefit charges by the same period of taxable payroll to arrive at a benefit ratio, which also determines the base rate for employers.  Both computations sometimes have a surcharge or social charge added to the final rate.

The rate schedules are not having a large impact on an employer’s tax rates for 2016 and 2017 will probably follow suit.    The taxable wage base, coupled with the increase in employment, seems to have more of an effect across the nation on employers than the tax rate schedules.    How does the taxable payroll reported affect an employer’s unemployment tax rate?  An increased taxable payroll in a benefit ratio state drives the rate downward to a more favorable rate.   In a reserve ratio state, the increased taxable payroll, if a low rate is in effect, can cause the next year’s tax rate to increase as the ratio moves to a less favorable rate.    In the case of a high rate being assigned to a reserve ratio state, the rate may decrease as contributions flow into the reserve balance of the employer.

In summary, we should see tax rate schedules remaining the same or decreasing for 2017.  The taxable wage base will continue to increase.   Each state will need an Average High-Cost Multiple (AHCM) for 2017 of  0.8 to qualify for an interest-free federal loan.  As stated in prior newsletters, the AHCM is a complicated formula that was derived through a twenty-year study of unemployment.  The AHCM is increased by 0.1 increments each year until 2019.   From 2019 forward, an AHCM of 1.0 is required for a state agency to qualify for the federal interest-free loan.   At some point, this will either affect the benefits paid to claimants; the states with set taxable wage base will need to increase their wage base or the rate schedules will need to increase as state agencies are being held to a higher level of solvency.


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