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California’s unemployment payback

By Kay Bell · Bankrate.com
Tuesday, August 13, 2013
Posted: 7 am ET

California is the most-populated state, so it's no surprise that during the recent economic downturn, it had for several years one of the highest unemployment rates in the United States.

Unemployment benefits are generally paid by state governments from money collected via state and federal payroll taxes levied against employers.

The California Employment Development Department reports that more than 750,000 people in the state currently are collecting unemployment benefits. The average Golden State worker who has lost a job gets up to $450 week.

But because there have been so many out-of-work Californians, the state has had to borrow money from Uncle Sam to issue the checks. It is not alone. The unemployment programs in 32 states needed similar bailouts from Washington.

But now California's fortunes are improving. A Los Angeles County Economic Development Corp. report released in July found that the state's economy has come back over the last 18 months with growth that has outpaced the nation. California's gross state product grew by 3.5 percent last year, well above the U.S. gross domestic product rate of 2.2 percent. California also added more nonfarm jobs at a faster rate than did the United States overall.

Taxes to repay benefits loan

All this good economic news has prompted Gov. Jerry Brown to talk about paying back Uncle Sam for the $10 billion it lent California to keep unemployment benefits checks flowing.

The governor's goal is to erase the debt by 2016 and then bank an $11 billion cushion for future unemployment benefits to Californians who lose their jobs.

Where will the repayment-plus money come from? More payroll taxes paid by employers.

The key proposal is to raise the decades-old amount of earnings subject to the employer-paid 6.2 percent unemployment payroll tax. The Los Angeles Times reports that the amount of wages subject to unemployment insurance taxes would increase from the first $7,000 of annual pay to $9,500 and eventually to $12,000.

Business perspective

Brown is hoping that the California Assembly will approve the business tax increase before it wraps up its session on Sept. 13.

You can bet that in addition to hearing from the governor, California lawmakers will hear from the state's businesses.

The corporate consensus is that a bit more in unemployment taxes is necessary.

But in return, businesses want California to toughen requirements on who qualifies for benefits. They also would like for it to be harder for part-time employees to get the checks. And companies want a reduction in the total amount of benefits that workers can collect.

There's also some support for a bond issue to raise the money to repay the unemployment benefits debt.

The goal is to win approval of some type of unemployment benefits package before the legislature finishes work for the year on Sept. 13.

***

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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3 Comments
Stuart
August 28, 2013 at 11:41 am

My daughter had to file for unemployment after she lost her job due to downsizing during the recession. She has worked her entire life. She had never received any government benefits prior to this. She has a law degree from an excellent school but because she lived in a very small town she had a difficult time finding work where she lives and raises her adopted son with special needs. She is not married and is the some bread winner.

She of courae qualified for the maximum unemployment benefit amount which is a mere 1800 a month and is taxable. Her rent is 1500 - far below the average in the town she lives. My grandson's monthluvexpenses far exceed the 1800 she received from unemployment.

Beyond that as a result of sequestration her monthly benefits were reduced from 1800/mo to 1400 - a 17.62% decrease. (Not the 6% typically mentioned by Washington).

The key point is that my daughter has paid the government taxes for unemployement, as do all Californians on every job she has had - even as a teen when she was self employed, giving horseback riding lessons to young kids. She paid all appropriate taxes as she should.

She was so ashamed and mortified at having to apply for unemployment benefits that I decided to sit down and calculate based on all of her prior tax filings. It turns out that over the twenty one years she has worked, she has paid more than twenty three times what she was allowed to collect. Like so many Americans and Californians she was hit by the recession and never ever envisioned herself needing to collect on the money she had been contributing her entire life. She is an extremely hard worker often putting in over 80 hours a week in a salaried position (ie no overtime). The 1800 is not enough to pay the bills much less buy groceries in a state like California with our cost of living. When the meager benefits were lowered by 17.67% it was laughable it was so bad.

Had she just put the money aside for her own safety net rather than paying the government she would have been doing brilliantly. Of course that isn't the premise of our democracy - we all chip in to help each other and should we ever find ourselves in that kind of horrible position, I should hope to think those benefits we have been directly contributing to over our lifetime, I should hope that they would be there for us.

Rather than cutting the ampunts actoss the board, we shoudl tie the bemfit amouny to salary. The current system is tied to salary but it caps at 20k or some such ridiculously low amount. Benefits havent increased with inflation or cost of living in more than forty years. And of course they were slashed disproprotionately as a result of sequestration. Again not 6% but 17.62%. When legislatures in DC saw it begin to effect them they called a special session to exempt airline personnel so that Congress wouldn't be delayed at the airport. While hard working Americans, like my daughter were hit the hardest despite having the least to lose.

She found another great job - she was heavily recruited but she had to uproot her son from his school and his entire support system - a child with special needs is not easy. She adopted out grandson out of the goodness of her heart and he is the best thing that could have happened to her and our family.

But because of her committment to him and his needs, she was in an area in California that had only one corporation in a forty mile radius. When it surprisigky went under, she didnt have other emplyment options. Her profession is in the corporate world and she is brilliant at what she does.

Meaning she did what she is supposed to do in this life and has worked extremely hard and through no fault of her own wound up needing to ask the government for a portion of the money she has contributed over the years. That was a humiliating and humbling process and was not even close to enough to help support she and her son for the short period of time she needed to find another position and relocate she and her special needs son.

She isn't alone in this. We have learned of so many people in similar positions with similar heart breaking stories. These are good people who needed some of the money back from the government that they have contributed to their entire lives. I hope you never find yourself in that kind of a position but if you do you will be aghast at how insanely cruel and inept those benefits actually are in reality.