0.2% Advance Interest Tax Triggers on April 1, 2011 (Arkansas UNEMPLOYMENT INSURANCE)

The purpose of the tax is to pay interest on Title XII advances received from the federal government to pay regular unemployment insurance benefits. The amount of the tax is 0.2% and the tax will remian on until the quarter after all Title XII advances and interest is paid and the Advance Interest Fund reaches a balance of five million dollars.

Arkansas being one of 32 states with an unemployment insurance trust fund that has an outstanding debt to the federal government. The latest projections we have from the AR Department of Workforce Services estimate the loan balance could grow from its current $330.8 million to $390.9 million by the end of 2011, $436.3 million by the end of 2012 and $449.7 million by the end of 2013 unless there are changes in the economy and/or changes to the unemployment insurance system. Because unemployment insurance is a federal program, federal laws are in place to recover the loans.

Unless the Arkansas debt is paid off by November of 2011, which is not likely, Arkansas businesses’ will see their FUTA tax rate increase from 0.8% to 1.1% payable in 2012. This rate is applied to the federal wage base of $7,000, which means employers will pay an additional $21 per employee in 2012. Again, the FUTA tax will continue to increase by 0.3% each year until the federal loan is paid off, which could take six to eight years. In addition to the increases in the FUTA tax, there will also be a 0.2% increase in the state unemployment insurance tax. This increase would be applied to the Arkansas wage base that is currently $12,000, which will cost employers $24 per employee. All of the revenue from this increase is required to be spent on interest charges. Therefore, employers will see their unemployment insurance costs increase by a minimum of $45 per employee in 2012. In the years that follow, the increases per employee related solely to the debt and interest would be: $66 in 2013, $87 in 2014, $108 in 2015, $129 in 2016, $150 in 2017, $161 in 2018 and $213 in 2019.

Congressional Action. As this problem has grown and become more understood, there have been rumors about what action the U.S. Congress might take. One rumor that has been around for months is that the federal government would just forgive the debt. We cannot accept that rumor—how could the U.S. government just ignore $41 billion. Also, we feared that any “forgiveness” would likely result in federal UI tax increases that would cause Arkansas businesses to subsidize the larger states with much greater UI debts. A more realistic approach the federal government might take on this issue would be to increase the federal wage base which is currently $7,000.

IT NEVER ENDS!!!

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