Inslee Shutdown Will Triple Unemployment Insurance Taxes

Date: October 02, 2020

Governor’s inaction bringing four years of higher taxes on small employers

OLYMPIA, Wash., Oct. 2, 2020—The state Employment Security Department last night released its latest Unemployment Insurance Trust Fund Forecast.

Contrary to the department’s Wednesday press release claiming it would be “saving” employers $200 million, the September forecast confirms what NFIB and others in the state’s business community have been expecting, at least an $800 million unemployment insurance (UI) tax hike for 2021, with additional tax increases to follow.

“Small employers will see their unemployment taxes explode, increasing by more than triple in some cases, just as they’re trying to put people back to work,” said NFIB Washington State Director Patrick Connor. “Gov. Inslee’s ongoing lockdown of the economy is already responsible for the permanent closure of hundreds, if not thousands, of small businesses; his refusal to direct CARES Act dollars to shore up the unemployment insurance trust fund will add significantly to our state’s rising small business death toll.”

Next year’s tax leap will be due primarily to a nearly fivefold increase in the social tax component of UI taxes. The social tax is assessed on all employers, typically to compensate for those firms that have gone out of business and are no longer paying taxes into the system.

Due to the coronavirus pandemic, the costs of most COVID-related unemployment claims are being absorbed by the trust fund, rather than charged to specific employers. Consequently, the social tax will skyrocket from 0.25% to the maximum 1.22% of payroll on qualifying wages.

The social tax spike will be compounded by experience-rated increases that will further add to the UI tax burden on employers. A portion of the more than $2.5 billion in state unemployment insurance benefits paid out of the trust fund so far this year will be charged to specific employers. This is the experience-rated portion of UI taxes, and the tax rate varies by employer.

The 2021 unemployment tax hike is just the first in a multi-year forecast of substantially higher taxes on Washington employers.

The UI tax is estimated to triple in 2022, compared to 2020, due to low trust fund balances triggering a solvency tax, in addition to the social tax remaining at the maximum rate, plus additional increases caused by experience rating. It will remain at much the same level for 2023.

Of note, the projections show 2022 UI taxes will be twice what they were at the peak of the Great Recession – not because of market forces, but due exclusively to government-mandated shutdowns of the economy.

Washington business organizations have been calling on Gov. Jay Inslee to shore up the trust fund by using a portion of federal CARES Act dollars the state received, to avoid or reduce this massive tax hike. Inslee has so far declined.

Contact: Patrick Connor, Washington State Director, [email protected]
or Tony Malandra, Senior Media Manager, [email protected]

Keep up with the latest Washington state small-business news at www.nfib.com/washington or by following NFIB on Twitter @NFIB_WA or on Facebook @NFIB.WA

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For more than 75 years, NFIB has been advocating on behalf of America’s small and independent business owners, both in Washington, D.C., and in all 50 state capitals. NFIB is a nonprofit, nonpartisan, and member-driven association. Since our founding in 1943, NFIB has been exclusively dedicated to small and independent businesses and remains so today. For more information, please visit nfib.com.

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