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Massachusetts Employers Face State, Federal Unemployment Tax Hikes

Posted on November 30, 2012

Massachusetts employers will begin yet another year on January 1 facing massive increases in both state and federal Unemployment Insurance taxes.

Unemployment InsuranceUI rates in Massachusetts are scheduled to rise automatically by 25 percent in 2013 unless the Legislature and Governor Deval Patrick step in to freeze rates for a fourth consecutive year. The freeze would leave UI tax rates paid by employers at the current Schedule E, avoiding an automatic jump in costs from $745 per employee to $929 per employee. 

Meanwhile, employers also face increased levies under the Federal Unemployment Tax Act (FUTA) as the government seeks to fill a $20 billion gap caused by multiple extensions of jobless benefits during the recession and recovery. The FUTA budget deficit may increase again, according to the Congressional Budget Office, as lawmakers discuss additional unemployment benefit extensions as part of an agreement to avoid the fiscal cliff.

John Regan, Executive Vice President of Government Affairs at AIM, said that the Massachusetts Unemployment Insurance Trust Fund will reach a balance of nearly $400 million at the end of this year, more than enough to forestall the statutory rate increase.

“Massachusetts has managed its UI tax rates and trust fund balances well during this recession and is among the few states whose trust fund balance is positive,” Regan said.

“The willingness of the governor and Legislature to freeze rates in each of the past three years has allowed the Massachusetts economy to grow during a sluggish recovery while simultaneously ensuring rate stability and trust fund solvency.”

AIM supports long-term structural reforms that would bring Massachusetts into line with Unemployment Insurance practices in a majority of other states by limiting the duration of benefits to 26 weeks, increasing work and wage requirements for benefit eligibility, and updating rate tables to create equity in employer UI payments. Massachusetts currently has some of the highest Unemployment Insurance rates in the nation.

In Washington, the Obama administration has included in its last two budgets a proposal to increase the wage base upon which FUTA taxes are calculated from $7,000 to $15,000 and to index that wage base thereafter. The administration also proposes to reduce and index the FUTA rate. Experts say the changes would cost U.S. employers $60 billion over 10 years.

The Congressional Budget Office (CBO) this week released a report reviewing options to extend the Emergency Unemployment Compensation (EUC) and regular Extended Benefit (EB) provisions that were included in the on-going stimulus provisions originally enacted back in 2009. With temporary benefits set to expire, CBO considered several options-with costs ranging from $3 Billion to $30 Billion on top of the existing $20 billion gap -to continue offering additional weeks of UI benefits.