Nevada employers face higher unemployment taxes next year

CARSON CITY -- Nevada employers could be hit with automatic increases next year in the taxes they pay to provide unemployment benefits for their laid-off workers.

Cindy Jones, administrator of the Employment Security Division, said the state now owes more than $450 million to the U.S. Department of Labor and employers could be required by a federal law to pay additional taxes to start paying off the loan.

"If a state has loans outstanding for two consecutive years, federal unemployment taxes are increased to employers toward paying back the loans," Jones said Thursday. "It is very likely that Nevada employers will experience an increase in federal unemployment taxes as it appears to be highly unlikely that the loans will be paid back in time to avoid this tax increase."

Michigan is the only state so far to be hit by the additional taxes. The Department of Labor ordered employers there starting last Jan. 1 to pay an additional 0.3 percent tax on their payrolls to begin paying off that state's loan. Michigan's tax rate will be doubled in January 2011 if the loan is not paid off.

The Federal Unemployment Tax Act, which permits the increases, also allows states on their own to impose additional taxes to pay back the loans. Jones plans to decide near the end of the year whether to increase the tax in 2011.

Nevada began borrowing in the fall from the federal government so it would have sufficient funds to continue paying as much as 26 weeks in state unemployment benefits to laid-off workers.

The state's unemployment trust fund topped $800 million in 2007, but it quickly has evaporated as Nevada's unemployment climbed steadily and now stands at 14 percent, highest in the nation.

The state's Employment Security Division has been forced to borrow $14 million a week to continue paying these benefits. Its loan is expected to approach $1 billion by the end of the year and could grow even larger .

Employers in the state are assessed taxes on the first $27,000 of each of their employees' earnings to cover unemployment benefit costs.

The state's average unemployment tax is 1.33 percent, but the rate varies from 0.25 percent to 5.4 percent depending on how frequent a company lays off workers.

Checks average about $300 a week, with a maximum of $400.

"Most states' trust funds, even those deemed well positioned for a normal economic downturn, like Nevada's was, could not absorb the tremendous economic shock this recession brought," Jones said.

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.