Unemployment Tax Rates Likely to Rise

The US Department of Labor reports that unemployment claims are at a 26 year high, and many state unemployment insurance funds are feeling the squeeze.

Unemployment benefits are funded from unemployment taxes paid by employers. These employer tax payments are pooled together into state unemployment insurance funds. The funds are required by law to continue to pay valid unemployment claims regardless of its financial health, even if that means borrowing money from the federal government. These federal loans, of course, must be repaid from future employer remittances. Historically, when a state fund is forced to borrow from the federal government, individual employer tax rates increase.

Ohio, Michigan and California have already announced the insolvency of their state unemployment insurance funds and Ohio has already requested federal assistance. The National Conference on State Legislatures reported in December 2008 that at least 16 states have less than a year's worth of benefits in reserves. The websites used to file an unemployment insurance claim in New York, North Carolina and Ohio were so overwhelmed at times during the first week of January that they crashed completely. In Michigan, unemployed workers waited in lines up to 5 hours long because they were unable to file claims either online or via the automated telephone claims service.

Nanny employers typically enjoy very low unemployment insurance tax rates because as a whole nanny unemployment claims are few and of short duration. The demand for qualified nannies has met or exceeded the supply for most of the last decade. A nanny employer will average $350 in state and federal unemployment taxes per employee in a year. Employers in states with insolvent funds, or nearly exhausted funds may see tax increases in the range of $50 - 100 per employee until the state funds are replenished.