Unemployment Taxes Set To Increase

On Thursday, September 2nd, the Department of Iowa Workforce Development announced Iowa’s unemployment trust fund is again in trouble, which means taxes on employers will increase to ensure its solvency and cover unemployment benefit payments.

On January 1, 2010, the mandatory unemployment trust fund contribution rates paid by Iowa employers increased for the first time in eight years. Not even a year later, employers are being told they will again have to open up their checkbooks, because on January 1, 2011, unemployment taxes are scheduled to rise. The increase is a result of the poor economic conditions in Iowa, the driving force behind record high unemployment and unemployment compensation claims.

Currently, the unemployment trust fund has a balance of $507 million. However, Iowa Workforce Development anticipates the second largest amount ever to be withdrawn from the trust fund in 2010. Because of this, the tax table is moving from Table 4 to Table 3, in order to ensure a sufficient amount of funding is available to cover future claims. When the economy turns around and the unemployment rate decreases, the tax tables should increase resulting in lower rates for Iowa employers. However, it is unclear when that is actually going to happen. The unemployment rate in Iowa is currently at 6.8% and has been holding steady for several months.

Employer contributions are established primarily on two factors, whether or not the business is new and the number of layoffs an employer has made in the last five years. Therefore, employers who frequently layoff employees pay higher unemployment taxes than those who do not. Iowa Workforce Development is required by law to use a formula to establish the contribution matrix used to decide the rate paid by employers. Unemployment contribution rates are based on wages, with the contribution portion set at $24,700 for 2011.