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The Federal Unemployment Tax Act (FUTA) imposes a tax on all businesses, with the revenues from the tax applied to each state’s Unemployment Insurance Compensation Fund. The UIC fund in turn pays benefits to qualified unemployed individuals in that state.
In 2009, however, Connecticut’s UIC fund became insolvent when the recession led to benefit payments -- which were extended from 26 weeks to 99 weeks -- that exceeded the funds collected from Connecticut employers.
The state thereafter borrowed the funds from the federal government to pay for the extended benefits.
“To cover the shortfall,” Shaban said, “Connecticut increased our employers’ state FUTA tax rate in 2011, and has followed with special assessments against Connecticut businesses to cover the interest payments on these federal loans."
Shaban, a Republican, represents Redding, Easton and Weston in the state House of Representatives.
"Our local employers are feeling the pinch,” Shaban said, citing Peter Moore of Weston, who runs BrightStar Care of Fairfield, a home-care health-care company that serves the elderly.
“BrightStar has one of the lowest individual unemployment rates in the state, but is being assessed at the same rate as employers who have had high turnover," Shaban said. "Mr. Moore reports that the assessment equates to a loss of nearly two months’ of his net profit; a drain that hurts his ability to hire and grow.”
In a letter to Shaban, Moore said, “The state places unexpected FUTA charges and interest on small businesses, which are unnecessary and provide no benefit to the employer. Consequently, more companies are forced to leave Connecticut, resulting in even more pressure placed on unemployment funds."
Shaban called for help for small businesses.
“Without employers there is no employment, so we need to stop hurting our employers at every turn,” Shaban said. “A stable tax and regulatory structure will return promise and prosperity to our state, not more unexpected rules and costly rate changes.”
All employers with one full year of taxable payroll are subject to the special assessment. This assessment increased the tax burden on Connecticut employers by $10 million in 2014, he said.
In addition to UIC special assessment, businesses must likewise pay an additional federal tax because the state failed to apply for a waiver from the Benefit Cost Ratio tax assessed against states that failed to repay their UIC fund loans, Shaban said. For the 2014 tax year, Connecticut employers were the only employers in the country required to pay this additional tax, and are now paying the highest FUTA tax rate nationwide.
“For the last two years I, along with other legislators, have tried to restore some fairness to the unemployment insurance system by eliminating these special assessments on our employers and paying the interest on the federal loans from the state’s existing budget,” Shaban said, citing proposed bills HB 5874 and 5968.
“Right now we impose over 350 different taxes and fees on our citizens. We tax our employers on everything from electricity to fuel, and then followed with an increase to the state unemployment tax rate, only to pile on special FUTA assessments. These burdens have led to our state being ranked dead last in job growth and having over 26,000 people move away from July 2013 to July 2014.”
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