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Joblessness triggers tax increase for businesses
Unemployment taxes on businesses to rise in January

Date published: 12/12/2009

BY CHELYEN DAVIS

Despite talk about easing burdens on businesses to encourage them to create jobs, companies in Virginia will be paying more in taxes come Jan. 1.

The state unemployment tax that businesses pay on each employee will be going up, from an average of $95 per employee per year to an average of $171 a year in 2010, $234 in 2011 and $263 in 2012.

The tax goes into the fund the state uses to pay unemployment benefits. The increase is not the result of any decision in Richmond, but rather is written into the law. When the unemployment fund gets low, it triggers an automatic increase in the tax. The increase is determined by a formula.

Virginia Employment Commission research director Don Lillywhite said there are some worries about the impact of the tax increase on businesses.

"There has been concern expressed in meetings and so on, 'You're raising our taxes at the very time we need to create employment,'" Lillywhite said. "The taxes go up automatically. We don't sit here and decide--it's based on legislation."

The fund is not just low, it's virtually empty. Unemployment claims have gone up about 80 percent this year over last year. The state is now borrowing money from the federal government to pay unemployment benefits and is likely to keep doing so through 2012, Lillywhite said.

The good news is that the amount of money Virginia is paying out in benefits weekly has been going down, from $25 million a week earlier this year to about $18 million a week more recently.

But Lillywhite said unemployment claims will probably rise after the holidays, as temporary workers get laid off.

He anticipates having a negative balance in the unemployment fund for 13 quarters. The state expects to borrow about $1.3 billion total.

Lillywhite said unemployment-tax revenues in 2010 are expected to be about $570 million, while the state anticipates paying out about $900 million in benefits for the year.

In January of 2009, the fund had $546 million, Lillywhite said; by Jan. 1, 2010, it is expected to be $178 million in the red.

Bill Cheatham, vice president for government affairs at the Virginia Chamber of Commerce, said the chamber hasn't heard much from businesses concerned about the tax increase--yet. He thinks most businesses are aware of the increase and why it's happening.


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