Ohio Employers Face Even Higher Taxes Under A New Proposal Thanks to Our Broken Unemployment Compensation System

Last week, I blogged about how the Department of Labor’s 2019 Trust Fund Solvency Report showed Ohio had only one third of the funds needed to remain solvent during a recession and that Ohio has not met the Department’s solvency target since 1974.

Now yet again another new development puts Ohio employers at risk for paying higher taxes. This time, a proposal in President Trump’s newest budget would impose higher taxes on employers doing business in states with low solvency levels. 

Only three other states have lower solvency levels than Ohio, so employers here would face higher taxes under the new proposal.

The president’s budget creates a new minimum solvency standard for a state’s unemployment compensation trust and calls for reducing the Federal Unemployment Tax Act (FUTA) credit that employers in a state receive when a state fails to meet the standard.

Reducing the FUTA credit will raise Ohio’s employer payroll taxes because the credit currently shrinks their federal unemployment taxes from six percent on the first $7,000 dollars of wages to 0.6 percent on the first $7,000 dollars in wages. For an Ohio employer that results in a savings of $378 dollars per employee in payroll taxes.

Under the president’s proposal, the reduction in FUTA credit will mirror the reduction states face when their unemployment compensation trust fund is insolvent, and they are forced to borrow money from the federal government to cover benefit payments. In 2009, when Ohio’s trust fund was insolvent last, Ohio employers ended up paying higher taxes for seven years to help retire the state’s loan of over 3.4 billion dollars.

It is time for Ohio lawmakers to step up to the challenge and finally fix Ohio’s broken unemployment compensation system. The President’s proposal is just the latest reason why waiting is no longer an option.

The insolvency clock is ticking…