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Unemployment Insurance Tax Refund Can Change As Economy Fluctuates
By: Elizabeth Bassett Fort Worth Business Press
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July 14, 2008
As about 360,000 Texas employers receive refund checks from the Texas Workforce Commission, some may be reminded that the major reason for the refunds is a factor that can change with the fluctuating economy.
The checks, which total about $148 million, are from unemployment insurance taxes, collected by the Texas Workforce Commission and put into the Unemployment Compensation Trust Fund to aid workers who become unemployed (through no fault of their own) and are actively seeking work.
The fund is about $738 million above the minimum required level mandated by state law, though, and employers will be receiving an average refund of more than $400. The fund has a balance that is estimated to be about $1.66 billion on Oct. 1.
The surplus tax refund will go out to employers who have payroll in 2008, are paying all due taxes and have been in business with payroll for at least 18 months prior to Oct. 1, 2007.
The happy surprise for Texas employers is two-fold this year, said Ann Hatchitt, director of communications for the TWC.
“Not only are we handing out refunds, but we’re not collecting as much money this year,” she said.
The 2008 calendar year average tax rate will be 0.92 percent, down from 1.30 percent in 2007. In the past decade, 2001 was the only other year with an average tax rate of less than 1 percent.
While the trust fund is full at the moment, it is usually kept between two levels, a floor and a ceiling. The past few years, it has been above the ceiling, which warranted the refunds currently going out (and the refunds that went out in 2007). The floor is calculated the number of people with jobs and wages being paid in Texas, Hatchitt said, and is therefore a flexible number, and the October 2008 floor is expected to be at $923.8 million, about $737.7 million above the level required by the Texas Labor Code.
“What’s happening here in Texas is because we’ve had such a strong economy almost four years now and low unemployment rate, the unemployment rate decreased the demand on the UI trust fund,” Hatchitt said.
This June has proven tough for unemployment topics: the national unemployment rate is 5.5 percent, up from 4.9 percent in January, according to the U.S. Department of Labor’s Bureau of Labor Statistics. While statistics for the state of Texas are not available for June yet, the May unemployment rate is 4.5 percent, up from 4.3 percent in January.
Unemployment rates and the decrease in the UI tax rates aren’t the only factors leading to the refund checks, though. The obligation assessment component of the Texas Employer UI Tax was eliminated as the TWC paid off bonds that were issued in 2003 to bolster the trust fund. Since the bonds were paid off early, employers will save an estimated $270 million in taxes this year.
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