WA small businesses likely to feel increase in unemployment taxes, says AWB

While Washington businesses can breathe a sigh of relief that they won’t be hit with an extra solvency tax next year to refill the Unemployment Trust Fund, they can still expect their standard unemployment taxes on employees’ wages to go up — possibly as much as five-fold.

The solvency tax comes into play when the trust fund drops below having seven months of payout left. At the end of the year, Washington’s trust fund is projected to be slightly above that. The trust fund has dropped by about half this year, currently sitting at about $2.5 billion.

The Employment Security Department has also stated it will likely not need to follow in the steps of 20 other states and take out a loan from the federal government next year, as was previously anticipated.

However, the Unemployment Trust Fund — which is funded entirely by unemployment taxes on businesses — still needs to be replenished after a year of unemployment levels not seen since the Great Depression. Even though they may have avoided a 0.2% solvency tax, business owners can still count on seeing an increase in the standard unemployment taxes.

Business owners could face large unemployment tax increases

Gary Chandler, vice president of Government Affairs for the Association of Washington Business, said this burden will likely fall hardest on the small shops and restaurants that are already trying to dig themselves out of the COVID-19 hole.

“You’re still getting hit with a large tax,” Chandler said. “A lot of them that are going to be hit with this are businesses that are barely hanging on.”

Even a tax jumping from $50 to $250 per employee can make a devastating difference to a small business if that business’ profit margin has shrunk this year, he said.

“Most of those could be hanging on with a half a percent profit …  so you throw just this one tax on top of that, now is that what’s going to shove you over of not being able to make it?,” he said.

Unemployment taxes are comprised of an experience tax, which is based on your own history of laying off employees, and a social tax, which is spread out among everyone.

The ESD has said the trust fund balance will not affect the experience tax, but if you are a business owner who had to lay employees off during the shutdown, you can expect this tax to go up.

The social tax is expected to be capped at a flat rate of 1.22% — nearly five times the minimum social tax of this year.

Chandler explained that businesses that don’t have a history of letting people go will ironically see the biggest social tax increases, because the social tax is spread out among everyone, instead of based on experience.

“The ones that are really being hit are in the lower rate class that usually don’t lay anybody off — they probably will be hit with a higher percentage,” he said.

If you are a small business owner, Chandler recommends you reach out to your legislators letting them know of your experience. He said that he and the other business representatives at the Association of Washington Business are working to prevent additional tax increases on businesses from the Legislature.

They are also advocating for Gov. Inslee to put CARES Act dollars into the Unemployment Trust Fund instead of raising unemployment taxes, though the governor has already said he likely won’t go down that route because that money has already been allocated elsewhere.

“Small businesses are going to be hit, and they’re going to be hit dramatically,” Chandler said. “In your small business, look what you paid for employment security taxes, and multiply that by 550%.”

Chandler noted that in 2022, there will likely be a solvency tax.

He said the $550 million paid out to fraudsters earlier this year — of which more than $300 million has been recovered — probably did not affect the trust fund as far as making a difference in the tax increase, but he noted that it certainly did not help the problem.

While the trust fund is going down, a backlog of Washingtonians are still waiting to see if they qualify for unemployment benefits. At a Sept. 17 press conference, when the backlog was at about 20,000 people, Gov. Inslee said he hoped to have the queue “back to a normal setting” by the end of the month. On the first of this month, that backlog was slightly higher, at 22,000.

Employment Security Commissioner Suzi LeVine has also taken on a national position, having been recently elected 2021 board chair of the National Association of State Workforce Agencies.

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