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Joblessness triggers tax increase for businesses page 2
Unemployment taxes on businesses to rise in January

Date published: 12/12/2009


"They certainly know that the recession has taken its toll on the state trust fund, and any time that happens, taxes go up," he said.

Cheatham said the chamber isn't advocating any changes in the system, nor would it support an increase in benefit payments to unemployed workers.

"Hopefully the economy will improve, the unemployment fund will replenish, and the taxes will drop," he said.

The state will borrow money quarterly; the first request to the federal government, sent in September, was for $252 million. Lillywhite said Gov. Tim Kaine is expected to send a letter requesting another three months' worth of money next week. Unemployment taxes that come in will go toward paying back the money.

While borrowing can be repaid from unemployment taxes, the interest on the money borrowed cannot be. A VEC report from September estimated the interest would be nearly $37 million total, money that will have to come from elsewhere in the state's coffers.

The unemployment taxes that employers pay don't come in to the state all at once, Lillywhite said. The tax is paid on the first $8,000 of a worker's salary, so the rate at which employers pay it depends on how much workers are paid. The first payments would be due in May, because businesses pay taxes quarterly.

Employers' tax rates are also based partly on their use of the system--how often they lay off employees who then need to draw from the unemployment fund. Companies that have had layoffs recently--Virginia looks at the last four years--will pay more than companies that have not. It's similar to car insurance, where rates go up if you have more accidents.

Lillywhite said there will be another issue of concern for some workers starting in January.

That's when a Social Security "offset" begins, again because the unemployment fund is so low.

The offset means that for unemployed people who draw Social Security benefits as well as unemployment benefits, their unemployment will be reduced by half of what their Social Security income is.

So a worker receiving $500 a month in Social Security and $1,000 in unemployment would lose $250.

Lillywhite said he's not sure yet how many people would be affected by that.

The state's Unemployment Compensation Commission will meet Dec. 17 to discuss some of these issues.

Chelyen Davis: 540/368-5028
Email: cdavis@freelancestar.com

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