The National Association of State Workforce Agencies (NASWA) has recently completed its second annual state unemployment insurance (UI) tax survey [NASWA State Unemployment Insurance Tax Survey, April 27, 2011].
For the second consecutive year, NASWA found that the majority of states project that their UI tax revenue will increase this year. The most common way this will occur is through some combination of: (1) an increase in unemployment tax rates on experienced employers (most popular response); (2) an increase in tax rates by moving employers to a higher tax schedule; and (3) an increase in the taxable wage base. The first two increases are automatic, while increasing the taxable wage base can be either automatic through indexing or done through legislation. Increases in tax revenue can also occur as the economy recovers and wages increase, even without a change in the tax rate or the taxable wage base.
Several states intend to impose temporary surtaxes or special assessments.
South Carolina is projecting the largest increase in UI tax revenue this year (135%). South Dakota is projecting the largest decrease in UI tax revenue this year (−34%).
Despite the increases in UI tax rates and tax revenue that many states anticipate for 2011, the average tax rate on total wages paid by employers is still relatively low by historical standards. While the average national UI tax rate as a percent of taxable wages has remained relatively constant since the UI program began, the average national UI tax rate on total wages has gradually declined. In 1938, across the nation there was an average tax rate of 2.69% of total wages; in 2010, the latest year for which data is available, the average tax rate was 0.98% of total wages, which is 64% less than at the beginning of the program.