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AGC to Legislature: Preserve Unemployment Tax Credits for Employers

Tucked within Governor Gregoires state stimulus package is a provision that has gotten the attention of the business community. Gregoire has proposed an expansion of unemployment benefits as well as a temporary reduction in the unemployment insurance tax.

AGC endorses the infrastructure investment portions of the Governors proposal (see article here) but has raised concerns about and suggestions for improving the $400 million unemployment insurance provision that is split between expanded benefits and tax reductions.

In testimony before the Senate Committee on Labor Commerce and Consumer Protection AGC Government Affairs Manager Christine Swanson said changes to the states unemployment compensation system should bring it into conformity with federal law noting that employers in the state could lose $300 million in federal unemployment tax credits without that conformity.

AGC understands the sense of urgency with this proposal; however a top priority for our members is to be in conformity with the federal government Swanson testified. There are millions of dollars in federal tax credits at stake and employers in the state cannot afford to lose that.

The U.S. Department of Labor (DOL) has ruled that a provision of Washington State law is out of conformity with federal unemployment-insurance laws. The provision in question is commonly known as pay at 2 charge at 4. According to DOL combining two-quarter averaging for calculating benefits with four-quarter averaging for calculating taxes – as is the case in Washington State – does not conform with federal law because federal law requires that tax rates directly correlate with an individual employers experience with unemployment.

Washington State employers are currently receiving the tax credit but it could soon be lost without action by the Legislature. AGC believes that a long term solution on conformity including addressing the surplus in the unemployment insurance trust funds must be included as part of this discussion said Swanson.

AGC also believes a review of the current unemployment tax structure is in order as the trust fund has developed reserves well beyond what is needed to pay a years worth of benefits which is the general standard. The temporary reduction in the tax is welcomed by AGC but it would like the Legislature to use this opportunity to reform the system for the long term so that the system is not collecting more money from employers than is needed.

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