35-year-old "temporary" unemployment tax has finally ended

By: Nole Fan Tax Planning 1 Follower

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Virtually every private employer in the United States will get a tax cut today. It will not affect workers’ paychecks. But the expiration of a 35-year-old temporary unemployment tax - about $14 a year per worker - will mean real money for some big companies at a time when President Obama is pushing Congress to raise taxes on some businesses by closing loopholes.

Amid a fierce debate over whether higher taxes should be part of a deal to reduce annual deficits - in exchange for letting the government go further into debt - the small cut in federal unemployment taxes has received little attention on Capitol Hill. Most employers probably do not even know they are getting it, especially those who are being hit with bigger increases in state jobless taxes.

But business groups say every little bit helps, whether you’re a small employer struggling to make a payroll or a huge company like Wal-Mart, with more than 1.4 million US workers. That adds up to nearly $20 million a year in savings for Wal-Mart.


Some worry that reducing federal unemployment taxes while the jobless rate hovers above 9 percent will add to the system’s financial problems. But the tax cut will save businesses nationwide more than $14 billion over the next decade, according to congressional estimates.


“The death of any tax on jobs, no matter how big or small, is a historic moment and one to be celebrated,’’ said Representative Dave Camp, Republican of Michigan and chairman of the tax-writing House Ways and Means Committee. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes - once in place, they are unlikely to ever go away.’’


The expiring levy was a 0.2 percentage point surtax on the first $7,000 of a worker’s wages. Getting rid of it effectively lowers the federal unemployment tax from 0.8 percent to 0.6 percent for most employers. That’s a decrease from $56 a worker to $42 a worker each year. The tax is paid by nearly all private employers, who also must pay state unemployment taxes.


The surtax was first imposed in 1976 to help pay for federal unemployment benefits distributed in the 1970s. The tax was supposed to be temporary, but like a lot of short-term measures in Washington, it endured and was extended at least eight times, under both Republican and Democratic presidents.


President George W. Bush proposed extending it in his 2009 budget, and Obama proposed making it permanent in the 2012 budget he released in February. Both presidents said the additional tax was necessary to help sustain federal unemployment trust funds.


“Payroll taxes are always a big problem for small businesses because they are not based on the profitability of the business, like most taxes are,’’ said Bill Rys, National Federation of Independent Business tax counsel. “Especially right now, when we have small businesses still really struggling to work their way out of this recession, every little bit has an impact on their bottom line.’’


By Stephen Ohlemacher, Associated Press


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