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State Pays Off Federal Unemployment Debt

From: OSCPA Staff Report

Body: In a move supported earlier this year by OSPCA, the State of Ohio on Tuesday paid off its unemployment compensation debt to the federal government.

The Ohio Department of Job and Family Services said the state paid the remaining balance of almost $218 million to end its federal obligation.

The Great Recession, combined with an underfunded unemployment compensation fund, prompted the state to borrow more than $3 billion from the federal government between 2009 and 2014 to pay unemployment benefits. Ohio was one of 36 states that borrowed a combined $130.3 billion to pay the required benefits.

Because Ohio's debt was not paid back within the two-year grace period, it led to annual penalties that increased federal unemployment tax (FUTA) on employers.

Lawmakers in the spring passed House Bill 390, which allows the state to borrow $250 million from Ohio's unclaimed funds held by the Department of Commerce to pay off the federal loan. State officials estimated that paying off the debt earlier than originally expected will save employers a net estimated $351 million. The payoff plan will cause the federal interest penalties to stop and allow the base FUTA rate to return to $42 per employee. It will also reset the "penalty clock" to reinstitute the two-year grace period. To repay this short-term loan, the state will add a one-time surcharge of roughly $45 to $50 per employee to next year's state unemployment tax bill. The surcharge, plus the normal base, will result in each employer paying about $87 to $92 per employee – far less than the $168 per employee it would have been.

HB390 also included an increase to employer taxes should the trust fund become insolvent in the future, unless lawmakers come up with a new method to make it solvent.

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