UI Tax Cut Will Save Minnesota Businesses $346.5 Million
Minnesota businesses will save $346.5 million over two years starting in 2014, thanks to a cut in unemployment insurance taxes that was proposed by Gov. Mark Dayton earlier this year and approved by the Minnesota Legislature.
Effective Jan. 1, 2014, for-profit employers will pay lower taxes for funding the unemployment insurance trust fund, which provides temporary jobless benefits to workers who are laid off.
The trust fund went into deficit during the Great Recession because of growing demand for unemployment insurance benefits. In response, the state raised the unemployment insurance tax rate on businesses and borrowed money from the federal government so that it could continue paying temporary benefits to Minnesotans who lost their jobs. But with the state economy improving and new claims for unemployment insurance benefits at their lowest level in nearly a decade in Minnesota, the trust fund now has reserves of $1.2 billion, enabling officials to reduce the tax rate on businesses.
“Given evidence of an improving economy and a healthy trust fund balance, the unemployment insurance tax cut is a smart move that will result in real savings for Minnesota businesses,” said Katie Clark Sieben, commissioner of the Minnesota Department of Employment and Economic Development (DEED), which manages the Minnesota Unemployment Insurance Program.
Among the Minnesota companies benefiting from the reduced tax rate will be Thor Construction Co., a Fridley-based firm that began operations in 1980. The company expects to save approximately $500 annually per worker because of the lower tax rate.
"Construction companies, with high volumes of seasonal workers, often have a harder time adjusting to the tax climate,” said Ravi Norman, the company’s CEO. “This unemployment insurance tax cut is a great mechanism for savings in our industry. It will add thousands of dollars to Thor's bottom line over the next two years, which will enable us to further reinvest in our employees as a greater competition for talent occurs during this projected local construction boom."
Currently, Minnesota businesses pay unemployment insurance taxes on the first $29,000 of annual wages per employee. Effective Jan. 1, the base tax rate they pay on that amount will be reduced from 0.5 percent to 0.1 percent. An additional 14 percent assessment that employers paid on their total unemployment insurance tax bill also will be eliminated starting in 2014.
The rate reduction for 2014 was contingent on the trust fund having a balance of more than $800 million as of Sept. 30, 2013. The rate reduction in 2015 is contingent on the trust fund having a balance of more than $900 million as of Sept. 30, 2014.
State officials said they anticipate the trust fund level to exceed $1.2 billion over the next two years, well above the level required for reducing the tax rate.