2011 Unemployment Tax Rates Reflect Recession's Depth

Most employers’ unemployment-insurance tax rates are increasing for the second year in a row due to an economic downturn that has set new records for unemployment benefits paid to jobless workers.

The Employment Security Department is mailing 2011 tax-rate notices this week to more than 170,000 Washington businesses. The average tax rate in 2011 will be 3.26 percent, up from 2.39 percent in 2010.

Unemployment tax rates are recalculated each year using a formula established in state law. The Employment Security Department does not have discretion to set or adjust tax rates.
“No one likes announcing that tax rates are going up, especially when the economy is still moving very slowly,” said Employment Security Commissioner Paul Trause. “In recent years, we have worked with the legislature to improve fairness and equity in the unemployment tax system, and we hope to make additional progress while maintaining a stable benefits fund.”
The average rate for 2011 is the highest since 1988 and is a far cry from the rates employers were paying just two years ago. Because the state had historically low unemployment from 2005 through 2008, the 2009 tax rates were the lowest in 40 years.
The 2011 tax rates will range from 1.33 percent to 6 percent for most employers, compared to 0.95 percent and 6 percent in 2010. Taxes will apply to the first $37,300 of earnings for each worker.

Some employers will have rates above 6 percent (as high as 8.64 percent) because they were previously delinquent in filing reports and paying taxes, or if they have not been in business long enough to establish their own tax rate.

Even employers that have had no layoffs in the past four years will see higher tax rates because benefit payouts far exceeded taxes collected in the past year — about $2 billion in benefits payouts from the state’s unemployment trust fund compared to about $1.2 billion in tax collections. When payouts far exceed taxes collected, tax rates increase at the bottom of the rate structure to slow the decline of the unemployment trust fund and keep it solvent.

Unemployment taxes are deposited into a trust fund from which benefits are paid. As of Nov. 30, there was $2.5 billion in the fund, enough to provide about 15 months of benefits in a severe recession. Unlike the worker’s compensation fund, workers do not pay into the unemployment fund.
Employers paying taxes in January 2011 are filing for the last three months of 2010, so they should continue to use their 2010 tax rates. The new tax rates will be used to calculate taxes that are due April 30 for the first quarter of 2011.