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Unemployment Compensation Tax Per-Employee Surcharge Drops

In 2017, Ohio employers will pay $87 per employee in federal unemployment compensation taxes ($42 base rate plus $45 surcharge), which represents nearly a 50% reduction over the $168 per employee they would otherwise be paying. Statewide, House Bill (HB) 390 saves Ohio employers approximately $405 million in 2017.

HB 390 caused the state to repay its unemployment compensation debt to the federal government by November 10. Had that deadline not been met, additional federal penalties on Ohio employers would have increased the federal tax per employee from $147 in 2016 to $168 in 2017.

Under HB 390, Ohio will advance the money to repay the remaining debt by using unclaimed funds money preventing the federal unemployment tax per employee from increasing in 2017. This eliminates the prior years’ worth of federal penalties that have added over $100 per employee in taxes paid by all Ohio employers. The 2017 rate drops to $42 per employee as a result of these penalties being lifted.

In order to repay the state for having advanced the money to eliminate the current and future employer penalties, the legislation requires Ohio employers to repay the state during 2017 via a surcharge of approximately $45 per employee.

Unemployment compensation is a shared state and federal obligation. When the state unemployment compensation fund is depleted, as occurred after the 2008 recession, the state automatically borrows from the federal government, and if that debt is not repaid within two years of the borrowing, that state’s employers pay federal penalties to repay the money owed by the state. At its darkest hour, Ohio owed Uncle Sam over $3 billion in compulsorily borrowed money to pay unemployment compensation benefits. Currently, approximately $240 million is still owed. While the state has paid the interest on that debt over the years since 2008, the principal payments were made by Ohio’s businesses via the employer penalties. That’s how the normal $42 per employee federal unemployment tax has spiked to $147 per employee. Without eliminating the remaining debt by November 10, the rate would have jumped again in 2017 to $168 per employee.

Meanwhile, the General Assembly faces the more controversial task of reforming Ohio’s unemployment compensation system so history does not repeat itself. Legislation is pending and will likely pass this fall. Among the solutions under consideration include:

  • reducing the number of weeks over which unemployment compensation is paid;

  • eliminating the dependency benefits paid to Ohio unemployed persons – among the most generous in the U.S.;

  • increasing the wage base over which employers pay state unemployment compensation taxes, at least until the Ohio fund reaches a minimum safe level;

  • charging higher premiums to employers with a history of frequent layoffs that trigger benefit payouts; and

  • imposing a tax on employees to pay for the solvency of the state fund.

For now, Ohio employers will breathe a welcome sigh of relief that the last five years of steadily increasing unemployment compensation taxes will end with rates returning to penalty-free levels next year.

© 2022 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume VI, Number 210
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About this Author

William J. Seitz III, Dinsmore, antitrust proceedings lawyer, franchise distribution attorney
Of Counsel

As both a respected state senator and an accomplished litigator, Bill brings unique experience and perspective to clients. He has more than 30 years of experience handling a wide range of matters, ranging from antitrust proceedings to franchise and distribution law. As a long-time leader in supporting criminal and civil justice reform, he is able to draw upon his knowledge to help clients navigate through complex regulations and resolve disputes efficiently. 

He has practiced antitrust law for nearly 40 years and was recognized in 2014 by Best...

(513) 977-8303
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