During the Great Recession, more than thirty states borrowed from the federal government to continue paying high unemployment benefits to claimants.    Today only California and the Virgin Islands remain on the FUTA credit reduction list.  However, the number of states on this short list does not indicate the solvency issue is resolved.

Ohio was the most recent state to repay their Title XII loan.   Through the passage of HB 390, legislation was passed to allow the unemployment division to borrow money from Ohio unclaimed funds, thus decreasing employer FUTA taxes from $168 per employee to $42 per employee.   To repay the loan from the unclaimed funds, employers will be assessed a flat rate repayment surcharge of approximately $45 an employee for a total of $87 per employee (including the FUTA rate) which is half of what employers would have paid in FUTA taxes before the passage.

Conceptual 3d abstract illustration.

Ohio’s problems do not stop with the repayment of the loan and a surcharge to employers.   The trust fund is weak and outdated.   Ohio attempted to reduce the amount an individual collected in unemployment benefits by reducing the benefits received from 20 – 12 weeks.   After much debate, it was determined the action would still not result in Ohio being solvent.   As a result, the Unemployment Compensation Reform Joint Committee was formed to modernize the Ohio unemployment program.    They met for the first time in August of 2016 and will meet four additional times.   The following is a list of their focus to obtain solvency by 2025:

Ohio is not the only state to have a low taxable wage base and solvency issues.   The taxable wage base in California is $7000 and has not changed since the early 1980s.   Over the past years, California has increased benefits to claimants and allowed more claimants to collect unemployment.  California still owes under the Title XII loan provision, and employers will pay higher federal taxes again for 2016.  Thus, the trust fund for California remains insolvent with no resolution in sight.    The governor of California has stated that the Title XII loan will be repaid in 2017 though borrowing from other state funds.   California will still be insolvent even if the loan is repaid. Arizona maintains a $7000 taxable wage base.    Texas is also claiming a solvency issue and has increased its 2017 unemployment tax rates.  The taxable wage base for Texas remains at $9000.

We can expect changes nationwide as the pressure to modernize unemployment systems increase.    Whether that is accomplished by increased employer/employee contributions will vary from state to state.

If you have any questions or concerns, please contact your CCC Tax Analyst.


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