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Temporary surcharge to double on state unemployment taxes Goes to $42 per worker in next year's billing

There will be a little extra something for businesses in New York early next year -- an extra tax.

Because of past economic downturns, the state's unemployment insurance system is in hock to the federal government, forcing a make-up payment of about $42 per worker.

The bite isn't new, having begun a year ago, and should be eliminated next year as the state's borrowing is repaid. But this year's bill will be double the one that employers paid a year ago, and some business people are fed up.

"It's one of these things that torques me off," says Patricia Potts, president of Harbison Bros. Inc. in Buffalo. She figures her 12-employee business, which washes out industrial containers, will have to pay several hundred dollars for the additional tax when her year-end bill arrives in February.

The per-worker tax is one more impediment facing businesses that are trying to grow in New York, critics say. "It's not one of the big ones, but on top of everything else," Potts said.

The Federal Unemployment Tax Act or FUTA pays the administrative costs of the state-federal unemployment insurance program. It also provides a pool of funds for states to borrow from, to pay benefits during times of high unemployment.

New York began borrowing from the federal fund during the downturn of 2002. By the end of 2004, at the end of a two-year grace period for repayment, the debt had grown to $692 million, triggering the increase in the FUTA levy.

"Our state and other states had to borrow," Labor Department spokeswoman Jean Genovese said. The state economy "is still recovering from the prolonged national recession and 9/1 1."

In addition to increasing payroll costs, the outstanding debt means employers are unable to use the short "EZ" form for tax reporting, the Labor Department said.

New York's management of the program came under fire by worker advocates early in 2004, the first time the FUTA levy rose. Although several states had to borrow federal funds to pay unemployment benefits, New York was alone in passing the cost on to employers as a flat, per-employee tax, according to the National Employment Law Project. Some other states modified their tax system to shift more of the cost to employers who had high unemployment costs, the New York City-based advocacy group said, spreading the burden more fairly.

But New York's big-business advocacy group argued against changes in unemployment taxes, given a big improvement in the state's Unemployment Compensation Trust Fund that is expected to wipe out the deficit -- and the additional federal tax -- by the end of 2006. The fund's deficit is expected to end 2005 at about $342 million, down by about half during the year, the Business Council of New York State said.

"The huge 2005 improvement exceeding one-third of a billion dollars is great news for New York's private sector employers," the group said in a statement.

The FUTA levy is normally $56 a year per employee, or less for workers who earned below $7,000 in the year. The additional charge to repay the state's borrowing was $21 at the end of 2004, and grows to $42 for this year, according to the Labor Department.

Increasing quarterly unemployment taxes to avoid federal borrowing and consequent year-end make-up payments would be up to state lawmakers, Genovese of the Labor Department said.

Susan V. John, chair of the Assembly Labor Committee, said she favors broadening the tax base for unemployment to avoid running "chronic deficits" and incurring interest charges that have to be passed on to employers. But she doesn't expect the issue to get much traction next session, as lawmakers grapple with big-ticket payroll issues such as Workers Compensation.

"I don't expect it's high on the list of priorities for the next session," the Democrat from Monroe County said.

State Sen. George D. Maziarz, R-Newfane, chair of the Senate Labor Committee, said he was unaware of the issue.


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