As a result of the State of Ohio paying off its unemployment compensation debt to the federal government, Ohio employers will reap the benefit of lower Federal Unemployment Tax they pay this coming January.  According to the Ohio Department of Job and Family Services, the state paid the remaining balance of nearly $218 million to satisfy its obligation to the federal government earlier this year.

Part of the fallout from the Great Recession, coupled with an underfunded unemployment compensation fund, was that Ohio was forced to borrow more than $3 billion from the federal government between 2009 and 2014 to pay unemployment benefits.  Because Ohio’s debt was not paid back within the allowed two-year grace period, it led to annual penalties that increased federal unemployment tax (FUTA) on employers.

Last June, Governor Kasich signed HB 390, allowing the state to borrow $250 million from Ohio’s unclaimed funds to pay off the federal loan.  The early payoff of the federal loan will result in a reduction of the FUTA tax of $72 per employee.  This will also reinstate the two-year grace period on future borrowings from the federal government.

It is, however, important to note that, 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.  This will likely reduce the net benefit that employers receive to approximately $25 per employee.   HB 390 also provided for an increase to employer taxes in the event the trust fund becomes insolvent in the future.  This is subject to modification if lawmakers enact adopt method of restoring its solvency.

If you have questions about the FUTA tax reduction or are seeking tips and advice to help better position your company financially, contact me at hkass@zinnerco.com or 216.831.0733. I’m ready to start the conversation.