The State of Unemployment Insurance Taxes in South Carolina

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1 The State of Unemployment Insurance Taxes in South Carolina

2 Background UNEMPLOYMENT INSURANCE TRUST FUND INSOLVENCY In one decade, the South Carolina Unemployment Insurance Trust Fund dwindled from a $600 million surplus to a $933 million deficit. Downturn in the economy caused unemployment claims to increase SUTA rate was too low to cover increasing costs Employment Security Commission failed to get the General Assembly s attention to notify them of the impending crisis South Carolina began borrowing funds from the federal government in December 2008 State now owes the federal government $933 million

3 2010 Law Recalculated Rates 20 Tier System Employers placed into tiers based on benefit ratio for previous seven years Employers who had no unemployment claims for previous seven years were placed into Tier 1 53% of employers Employers who had the most unemployment claims were placed into Tier 20

4 2010 Employer Rates (per employee per year) Tier 2011 Employer Rates (per employee per year) Estimated Number of SC Employers in Each Tier $ $ ,426 $ $ ,963 $ $ ,383 $ $ $ $ $ $ ,212 $ $ ,026 $ $ ,425 $ $ ,640 $ $ ,479 $ $ ,469 $ $ ,771 $ $ ,133 $ $ ,219 $ $ , $ , $ , $ , $1, , $1, ,601 TOTAL EMPLOYERS: 85,231

5 The Fallout Very little warning of the SUTA rate increases left many companies scrambling to find ways to pay their taxes. Some companies saw up to 600% increases, while over 50% of South Carolina companies got a rate decrease. Manufacturers and staffing companies were hit the hardest. Many companies put in place hiring freezes, halted future expansion plans, and had further layoffs.

6 Manufacturing Burden of UI Debt Repayment Plan Data from SCDEW for NAICS 31, 32, and 33 Tier Firms Estimated Employment 2009/10 1 1, % 5, % % 5, % % 6, % % 9, % % 5, % % 21, % % 4, % % 6, % % 10, % % 5, % % 6, % % 8, % % 8, % % 9, % % 12, % % 16, % % 17, % % 19, % % 19, % % 28, % TOTAL 4, ,927

7 LEGISLATIVE ACTION The House and Senate held months of debate with over forty different scenarios considered to recalculate rates. Ultimately, the General Assembly decided to appropriate onetime funds and impose eligibility restrictions to provide all companies with about 22% SUTA tax decreases. Appropriated $146 million to go towards paying back the federal loan Reduced workers eligibility benefits from 26 weeks to 20 weeks Imposed eligibility restrictions on seasonal workers

8 Other SUTA Legislative Reforms Employers who had a surplus for previous seven years, will be placed in Tier 12 for 2011 only. New employers coming into South Carolina will be placed in Tier 12, rather than Tier 13, until they have gained 12 months experience. Interest for SUTA payment plans was reduced from 1% per month to.25%.

9 Unemployment Insurance Tax Cost Savings After $146 Million Appropriation Rate Class Initial 2011 Estimated Cost Per Worker Revised 2011 Estimated Cost Per Worker Estimated Cost Savings Per Worker Estimated Percent Savings 1 $10.30 $10.30 $ % 2 $ $81.80 $ % 3 $ $90.30 $ % 4 $ $99.90 $ % 5 $ $ $ % 6 $ $ $ % 7 $ $ $ % 8 $ $ $ % 9 $ $ $ % 10 $ $ $ % 11 $ $ $ % 12 $ $ $ % 13 $ $ $ % 14 $ $ $ % 15 $ $ $ % 16 $ $ $ % 17 $ $ $ % 18 $ $ $ % 19 $1, $ $ % 20 $1, $ $ %

10 Credits & Refunds Companies will receive final notification of revised unemployment insurance tax rates around September 23, Credits and refunds for the first and second quarters of 2011 total $80 million. Federal law will only allow for a credit for first quarter overpayments. The credit will be applied as payment towards future taxes. Companies will not have to take any action to make this happen. Overpayments for the second quarter will be refunded upon request to the agency. SCDEW, Attn: Tax, 1550 Gadsen Street, Columbia, SC rateinfo@dew.sc.gov The lower tax rates for the third and fourth quarters are expected to save businesses a total of $58.2 million. October 1, SCDEW Web portal will be made available for companies to view credits and request refunds. For updates, please visit or contact rateinfo@dew.sc.gov.

11 What to Expect Going Forward January 1, 2012 SUTA Taxable Wage Base increases from $10,000 to $12,000 January 1, 2014 Look back period reduced from 7 years to 3 years January 1, 2015 SUTA Taxable Wage Base increases from $12,000 to $14,000

12 What Happens to Rates for 2012? Will employers rates go back up? Will the SC General Assembly appropriate another $130- $140 million to make the 2012 federal loan payment? Will President Obama forgive or delay loan payments? Battleground states: California - $8.8 billion North Carolina - $2.5 billion Florida - $1.5 billion Ohio - $2.6 billion

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