Official trims employers' unemployment tax to 1.95 percent

CARSON CITY — In a surprise move, state Employment Security Division administrator Renee Olson on Wednesday reduced the state unemployment tax paid by employers to an average rate of 1.95 percent, down from the 2.1 percent rate recommended in October by a citizens group.

Olson noted the Employment Security Council had recommended the 2.1 percent tax rate, but gave her the option to be flexible with the rate depending on her success in a related matter—selling bonds to pay off a $530 million debt that the state owed to U.S. Department of Labor. Nevada ran out of money and needed the loan to pay state unemployment benefits during the recession when the unemployment rate reached 14 percent.

In at least the last 30 years, the administrator never has changed a recommendation by the council. Olson is the only state official with the power to raise or lower taxes in Nevada.

She recently secured a 1 percent interest rate on a bond issue that paid off the federal debt. Employers must pay an additional 0.5 percent tax to retire the bond over the next four years. So they will pay a combined average tax rate of 2.45 percent in 2014, up from the 2.25 percent rate in 2013.

If Nevada has not used the bond plan to pay off the debt to the federal government, however, then employers also would have been hit with higher federal unemployment rates next year.

Because the loan has been paid off, the federal tax rate paid by employers next year will be 0.6 percent, not the 1.5 percent rate if the state had done nothing. That tax, however, is paid only on the first $7,000 in an employee’s wages.

Olson said when the combined tax rates are looked at, Nevada employers will be paying no more than they did in 2013 to provide unemployment benefits for their workers. And the debt will have been paid off and the federal tax rate reduced, she added.

No one spoke out for or against the new tax rate in a sparsely attended hearing. But Olson noted that there also was no opposition to her plans during a hearing in October attended by businesses.

Besides paying off the federal debt, Nevada is in a position to build an $800 million to $1 billion reserve in the unemployment trust fund by 2018, according to Paul Schmidt, a state economist. The Employment Security Division needs a high reserve so it has ample funds to pay unemployment benefits if another recession occurs.

The tax is an average rate. Companies that seldom if ever lay off workers pay a 0.25 percent tax rate, while companies with a history of making layoffs pay a 5.4 percent tax. The tax is paid on the first $27,400 of each employee’s pay.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901. Follow him on Twitter at @edison vogel.


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