Tax Changes
11:43 am
Fri August 19, 2011

CT Employers On The Hook For Federal Interest Charges

Amid all the many tax changes taking place in Connecticut right now, more than 70,000 businesses are receiving a special bill from the state Department of Labor. The cash will go toward paying interest on federal loans that the state has taken out in order to keep paying unemployment benefits. WNPR’s Harriet Jones reports.

Mark Richards runs an IT consulting and recruitment company in Shelton, and he employs 25 people. He’s already grappling with changing his payroll to impose a higher income tax on many of his employees.

“We just saw the rates that were fairly high and significantly changes, so it’s just about to hit us, so we’re trying to be as prepared as possible.”

In addition to those changes, he also just received a bill that his small business must pay in order to keep the state’s unemployment trust fund afloat.

“I think that’s kind of a crummy thing for the state to be doing. It’s not a great position for the state to be in. But to go forward, I mean, you know, how much can you extract from the people who are the workers?”

The unemployment trust fund, which is the pot of money from which unemployment benefits are paid, is already funded by a tax on the state’s employers. But under the burden of a more than nine percent unemployment rate, it went bust back in October of 2009.

“And because we have a federal mandate to continue paying benefits, we borrowed money from the United States Department of Labor to pay those benefits.”

That’s Carl Guzzardi, who’s the tax director for the state Department of Labor. Currently, Connecticut is paying out more than $30 million a week in unemployment benefits, and so far, the state has borrowed more than $800 million. Last year, the feds used stimulus money to give states a break on the interest payments on these loans, but that forgiveness has now run out, and Connecticut is billing some 73,000 employers in order to meet its interest charges.

“The news is not good. I mean, I’m not going to sugarcoat this. When you’re billing employers at a time they can least afford it, it’s not well received.”

Those bills were sent out August 1st, and if they’re not paid within 60 days, employers will face penalties. Guzzardi says businesses will chip in, in proportion to their payroll.

“Just for an example if an employer had an employee that they paid $1,000 in taxable payroll – that the payroll that’s subject to unemployment tax – they would pay $1.70 for their annual assessment on that payroll.”

Guzzardi contends this interest payment, which over the next three to four years could cost the state’s employers $100 million, might have been avoided completely. There’s a statutory cap on how much the unemployment trust fund can collect from employers in good times, when fewer people are unemployed.

“Once you reach a certain level, your taxes drop, because you can’t keep any more money in the fund. We think that amount, that goal, that solvency goal is too low.”

Raise the goal he says, and you collect enough money during good times to avoid having to borrow money when the economy goes bad. That’s controversial among the state’s business community. The Connecticut Business and Industry Association says raising the cap proportionate to the deepest recession in a generation would be an overreaction.  Last legislative session a bill authored by the Department of Labor seeking a doubling of the reserve goal died in the legislature. Senator Edith Prague is co-chair of the labor committee.

“It isn’t something that legislators really want to do, they don’t want to impose any more of a burden on businesses. But it’s something we have to do, and I’m sure it was because there was not a full understanding of the repercussions if we don’t do this."

And she says another attempt to change unemployment trust fund’s reserve goal will be made next year.

For WNPR, I'm Harriet Jones.