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Florida Employers Could See Major Unemployment Tax Hike

If the Florida legislature fails to act soon, Florida business owners could see a significant increase in their unemployment tax bill.  Business owners will see their bill go up to $172 starting Jan. 1, 2012 as the state continues to feel the effects of a lingering recession, sluggish payroll growth and double digit unemployment.  While certainly disturbing, the tax hike is not altogether unexpected, because it was supposed to occur two years ago.  Employers were initially bracing for a large tax hike in 2010, but state legislators decided to stall the increase in the hopes that the economy would recover.

Many out-of-work Floridians rely on unemployment compensation benefits to support themselves and their families.  Unfortunately, the trust fund used to pay those benefits has been drained as nearly a million Floridians have remained out of work. In order to continue to pay unemployment benefits, the state has been forced to borrow more than $2 billion from the federal government to help keep the trust fund solvent.  Now, interest is due on the unpaid balance, which is passed on to employers through a once-a-year assessment.

Usually if the trust fund falls below a certain threshold, Florida law annually adjusts the unemployment tax rates on businesses to rebuild the balance in the trust fund.  When the trust fund balance fell to zero in 2009, this “trigger” was supposed to have raised the rates in 2010, but 2010 legislation was enacted to disregard this factor for 2010 and 2011, thereby keeping the rate lower than what it otherwise would have been.  Now legislators are faced with the issue once more, and the economy has not experienced the significant rebound they had hoped for.  Officials are hopeful that somehow state legislators can somehow minimize the size of the tax hike.  However, the tradeoff is that it could take longer for Florida to pay back the federal government and employers could be subject to higher costs over the next several years.

It seems that Florida has been backed into the classic “pay me now or pay me later” scenario.  The immediate fear is that any tax increase could have a negative effect on employment, as business owners would be hesitant to hire more employees with the uncertainty of tax increases hanging over their heads.  While the long-term concern is that higher business costs that could stymie future growth.  Hopefully, the legislature will be able to find a solution that adequately addresses future concerns without further stifling the already fragile economic recovery.