Unemployment Tax
When the recession hit a low point last year many small businesses shed their payroll and didn’t realize they would have to pay unemployment insurance tax. The tax increases will impact thriving businesses as they expand their payroll because they will have to pay based on their growing wages.
State unemployment insurance taxes are paid throughout the year, as owners pay their other payroll taxes. States typically have a base unemployment tax, which owners will pay according to the size of their payroll. But as a company lays off employees, it develops a negative “experience rating” that can boost that tax.
According to a survey conducted by the National Association of State Workforce Agencies numerous states are running out of funds to pay for thier out-of-work populations. With jobless claims swelling and coffers depleting, at least 35 or the 50 states are hiking unemployment tax rates this year.
“The business that has laid off folks gets hit proportionately higher because while they pay less in total wages, and therefore less in employment taxes, their experience rating will go up and it takes numerous quarters of no layorrs to get that experience rating back down.” says Henry Paula, a tax principal at Reznick Group PC.


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