Ohio’s state unemployment insurance compensation fund is nearly insolvent, again. The state’s legislature has been looking for a solution since the last recession – the last time the fund ran short of money. Without changes to its unemployment insurance system, the fund is projected to become insolvent by 2021 without the help of a recession or economic slowdown. Ohio’s fund went insolvent in 2007 and the state was forced to borrow money from the federal government to make its payments to unemployed workers. The state is still not taking in enough revenue to fund unemployment at levels recommended by federal guidelines.
State lawmakers appear to have hammered out a solution that involves a tax increase on both employers and employees. If the legislation passes, Ohio would become one of only four states that has employees share the cost of unemployment insurance even when they lose a job through no fault of their own. Ohioans have a vote in the proposed changes. The new law requires a bond fund that must be approved by voters.
Catherine Candisky and Jim Siegel of The Columbus Dispatch recently wrote about the details of the legislation,
“The proposal would raise about $370 million a year from 2019 to 2030 by:
- Raising the taxable wage base paid by employers to $11,000 per employee, up from $9,500.
- Charging employees a new co-insurance payment of 10 percent of the amount paid by his employer.
- Freezing the amount of weekly benefits for 10 years.
- Reducing the maximum number of weeks benefits can be received to 24, down from 26.
- Limiting additional payments for dependents under certain circumstances.”
The current proposal has employers and employees sharing the cost of unemployment benefits almost 50/50. However, the plan puts the majority of the cost of benefits on employers (62%) after a 10-year freeze on benefits is lifted.
If a key part of the plan passes the ballot initiative, Ohio would become only the fourth state to require workers to contribute to the cost of benefits they receive after a no-fault layoff. Currently, only New Jersey, Pennsylvania, and Alaska have cost sharing programs.
In New Jersey, each worker contributes to the unemployment compensation fund at a rate of 0.3825% on taxable wages. Pennsylvania deducts a payroll tax of 0.07% from employees’ gross wages. Alaskan workers employed by employers that pay unemployment insurance contributions are required to pay a payroll tax of 0.50% on taxable wages.
Nonprofits have options
The above tax rates, high or low, apply to all businesses except 501(c)(3) organizations. 501(c)(3)s do not have to pay state unemployment insurance taxes. Many nonprofits could save as much as 30% on their unemployment costs by opting out of the unemployment insurance tax system – an advantage provided to them by the IRS. Doing so affords nonprofits unique avenues that allow them to strategically handle unemployment claims administration and unemployment insurance taxes in ways that for-profits can only dream about.
Contact us today for more information concerning your nonprofit unemployment insurance tax advantages.