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Unemployment Insurance Trust Fund Bounces Back

Three years ago, Utah businesses had a rude awakening when they received notices from the Utah Division of Workforce Services that unemployment insurance premiums would be increasing by up to 300%. With Utah's economy booming, unemployment insurance tax rates are dropping again.

DWS recently mailed the UI tax rates for 2007, and a majority of employers (68%) will be paying a rate of 0.3%, a 25% reduction from 2006's rate of 0.4%. This is still higher than the 0.1% rate for 2001, 2002, and 2003, but rates are projected to decrease to 0.2% in 2009. Rates for employers that have had UI claims charged to their account within the past four years will be higher.

Now, with unemployment down to historic lows, the Unemployment Insurance Trust Fund balance is at $659 million as of September 30, 2006, or nearly 85% more than the fund balance of $357 million in June of 2004.

In June 2003, the UI trust fund balance had fallen below the minimum adequate threshold as determined by a statutory formula. DWS projects that the UI trust fund balance will surpass the minimum adequate threshold in June 2007 and will surpass the maximum adequate threshold in June 2008.

Technical note
The formula for calculating UI rates is as follows:

rate = (benefit ratio) x (reserve factor) + social rate.

If an employer has not had UI claims charged against its account by previous employees, the employer pays only the social rate, which will decrease from 0.4% in 2006 to 0.3% in 2007. The social rate covers benefit costs that cannot be charged to specific employers.

Benefit ratio is calculated by dividing UI claims charged against a company's account in the previous four years by annual taxable wages.

Reserve factor is adjusted annually depending on the state of the trust fund balance. If UI reserves are between the maximum adequate balance and the minimum adequate balance, the reserve factor is 1.0. When UI reserves fall below the minimum adequate balance, the reserve factor exceeds 1.o. The reserve factor in 2006 was 1.25 and will decrease to 1.05 in 2007 and is projected to decrease to 0.80 in 2009.