October 3, 2013
As states begin to heal from the Great Recession, a side effect from the injections of federal money into state unemployment funds threatens to slow the recovery. When states run out of their own money to fund unemployment, they borrow from the federal government to pay benefits to the unemployed, and then repay the loans out of their own pockets when things improve.
However, many states were unprepared for the increase in unemployment that began in late 2007 and quickly borrowed large amounts. The lack of funding was due to states adopting a "pay-as-you-go" approach that held taxes artificially low when the economy was healthy instead of preparing for recession, according to the Center on Budget and Policy Priorities. The increased borrowing now means that employers in cash-strapped states are seeing their unemployment insurance tax rise.
Employers hurt when state fails to pay
Employers in states that fail to fully repay loans within two years are subjected to a yearly increase in federal unemployment tax paid by employers until the loan is repaid. Due to the size and length of the recession, some states now have massive debt obligations that could take years to pay back. North Carolina is one of the many states that was ill-prepared when the recession hit and was left with nearly $2 billion in debt to the federal government.
States will need to reduce unemployment benefits
The state passed legislation in July that has dialed down the length and size of state unemployment benefits, according to News & Observer. While other factors will affect the loan repayment, the changes to North Carolina's unemployment benefits could mean loans are repaid by the end of 2015 instead of 2018.
States that do not follow North Carolina's lead in reducing state unemployment may find themselves hindering their recovery. While federal unemployment tax contributions are low – 0.6 percent of the first $7,000 paid annually to each employee – the yearly increase in that figure until the loan is repaid means more unpredictable costs for employers. To some companies, that liability could be one more reason that increases to their workforce will be placed on hold.
While the effect of that tax increase on hiring numbers is speculative, states have plenty of other reasons for expediting loan repayment. The realization that unemployment programs need to be forward funded means not only paying down the current debt, but shoring up reserves for the future. A state that has liability from the Great Recession when the next downturn hits will find itself in a precarious situation.
To learn how your organization may take action to address these cost increases that pose a new challenge to your organization, complete the information request form on the right.
Working with Marshal Whittey at First Nonprofit has been a great experience. He handles our request as a priority and goes above and beyond to resolve any issues we have in a timely manner. Marshall follows through to the end and ensures our needs are met. He has been a great resource for LSC and our “go to” for any tax questions we may have. With LSC transitioning several facilities into one federal tax identification number, First Nonprofit was able to assist and provide guidance with best practices resolving claims to each entity. Additionally First Nonprofit provided knowledge (information materials) and one on one training to HRS group with best practices to handle claims state adjudicated, fraudulent claims, and appeals. And processing information in the First Nonprofit [unemployment claims] system allows for timely information can be collected.
My experience with FNP has been wonderful. Unemployment in general is quite confusing and FNP has simplified the process for us. Everyone we have reached out to or worked with has been very helpful and follows up to be sure we understand the information. I am so happy we made the switch to FNP!
First Nonprofit smoothed the unemployment perils for our organization during Covid. Without the ability to cap our UI exposure, we would not have been able to weather the storm. The program worked perfectly and we have come out of the pandemic ready to forge on. Thanks FNP!
My experience with the FNP has been fantastic. The idea of setting funds aside for the unemployment tax liability is a bedrock for nonprofit organizations like mine, namely ASHBA; what is even more advantageous is having the FNP as a custodian of those funds. 100% recommended!
I would like to comment on my experience with FNP….to date our District has saved $1,000’s of dollars by being enrolled in the First Nonprofit program. My only regret is that we did not know about this method of paying unemployment tax years ago….as I had figured about five years
ago, had we enrolled 15-20 years ago, we could have saved our small school district upwards of $500,000 in payments to IDES. Also we would have had a pretty hefty sum of money in our Reserve Account. Thankfully I attended a workshop hosted by First Nonprofit back in 2015 which got the ball rolling!
I have worked with the First Non-Profit Team for many years, and I appreciate the quick response and care that Cecilia and the team provides anytime I have questions. While there are other providers that may provide like services, First Nonprofit will always be my first choice! I appreciate you!
First Nonprofit has been easy to work with and makes the administrative process easier and smoother. We enjoy working with you.
Luckily for us, our interactions regarding any issues with staffing has been very minimal! I can say that all other interactions with regards to billing, 941 reporting, etc. have been extremely pleasant, accommodating and easy to work with. Kim Ghanayem is always prompt, professional and friendly. Thank you so much!