Virginia’s businesses owners are going to shell out more next year to help the cash-strapped commonwealth pay back Uncle Sam for keeping the unemployment assistance checks from bouncing.
In 2011, businesses paid an average of $207 per employee into the unemployment assistance program.
That figure will go up $21 in 2012 to cover a late fee the federal government is charging Virginia for taking more than two years to pay back its loan for unemployment assistance. In July, businesses started paying $42 extra per employee, down from $56.
In 2010, businesses paid an average of $166 per employee. In 2009, it was $103.
Virginia owes about $252 million to the federal government for an unemployment benefits assistance program.
States collect payroll taxes to pay future unemployment insurance benefits, but after the funds are depleted, those states then have to resort to federal loans to keep up with payments.
Don Lillywhite, research director for the Virginia Employment Commission, said that because of the large increase in the number of people getting laid off and filing claims, the state’s unemployment trust fund, which is used to pay benefits, ran dry.
“We weren’t taking in sufficient tax revenue to pay those benefits,” he said.
In 2008, 356,000 claims were filed. In 2009, 502,000 claims were filed.
Because of the depleted fund, Virginia started borrowing from the federal government in October 2009 to keep benefit checks in the mail.
After that, the federal government increases the FUTA tax employers pay per employee as a penalty for the state’s outstanding loans.
Some states are opting to decrease their debt in other ways to prevent businesses within their borders from having to pay the late fee. Idaho, Texas and Illinois have issued bonds to stop borrowing from the government to make unemployment payments. Michigan is also awaiting approval to issue bonds.
Lillywhite said the money could have come from other resources, but the increase in taxes was the quickest option.
“To float a bond is not that quick and not that easy, and it has to be OK’ed by the General Assembly.”
The state repaid $358 million on the loan in May and $45 million in August.
Arch Wallace, owner of Glen Allen payroll firm Checkright, said the extra tax won’t cripple his business. But for some others, it will sting.
“I’ve had to send emails to companies that have over 100 employees telling them they owe that extra money,” Wallace said.
“Even for a smaller company with 50 employees, some of them are really struggling,” he said.
Wallace said many of his firm’s clients are furious about having to fork over more in taxes.
Tom Rhodes, the COO at Direct Mail Solutions, said he can’t understand why businesses are picking up the slack for the state.
“This unemployment tax is hard to stomach,” he said. “It’s a maddening thing. That’s a couple more thousand dollars out the door.”
Rhodes said that, since the recession, he’s expanded his business from 80 to 140 people.
“We’re carrying our weight and creating jobs,” he said. “We’re not the problem.”
Mike Gracik, a partner at the accounting firm Keiter, said the new tax would cost his firm an additional $2,700 a year for his 130 employees.
“We’re not welcoming it. We’d rather not pay it, but it could be worse,” Gracik said.
Lillywhite said Virginia is better off than other states that borrowed from the federal government. Of the 28 still in debt to the government for a total of about $38 billion, 20 owe more than Virginia. California has the largest outstanding loan, owing $9 billion for its unemployment payments.
There are also fewer people filing claims than the year before. From January to October, 269,600 claims were filed in Virginia, a 14 percent decrease from the same period last year.
This year’s unemployment rate sits at 6 percent, also down from 6.7 percent last year.
People receiving unemployment benefits in Virginia collected between $54 and $378 a week for 2011, according to the VEC. The maximum average in the United States is $407.
Lillywhite said the federal goverment will not impose the tax in 2013 unless the state has to borrow significantly more than projected.
“Unless things get bad, that tax will not be imposed the next year in Virginia,” he said.
Virginia anticipates making a $300 million payment on the loan in April once tax payments from employers come in.
“$300 million is not all we owed,” Lillywhite said. “It’s all we felt we could pay at the time,” he said.
Between now and April 2013, the state will have to borrow an additional $196 million.
“All of the money has been spent to pay back loans or to pay benefits,” Lillywhite said. “Every week until we get a big chunk of taxes in, we’re going to have to continue borrowing.”
The state expects to be out of debt by May 2013.