Most Alabama employers will be paying record-low unemployment insurance taxes this year, news that was celebrated Thursday by state and business leaders.
Thousands of small and large businesses pay the tax that feeds the state’s Unemployment Insurance Trust Fund, which pays short-term unemployment benefits to residents who lose their jobs. Those numbers hit record highs during the COVID-19 pandemic, prompting state leaders starting in 2020 to pour more than $460 million in federal rescue funds into the trust fund before it was drained. The tax on employers was also increased.
As of late last year, the Unemployment Insurance Trust Fund balance was nearly $895 million, above its pre-pandemic level.
“Following the economic uncertainty and the record-breaking amount of unemployment compensation benefits paid out during the pandemic, it is absolutely remarkable that we have been able to lower taxes for employers and drop to the lowest tax rate schedule in this short amount of time,” said Alabama Labor Secretary Fitzgerald Washington.
Exactly how much money employers will now pay in unemployment taxes varies on their experience rating, but this year’s average tax rate, .55% is the lowest in recorded history, according to labor.
An example provided Thursday showed a company with 20 employees and taxable payroll of $160,000 paying $1,904 in unemployment insurance tax in 2022 and $880 in 2023, a decrease of 54%.
Rosemary Elebash, director of Alabama’s chapter of the National Federation of Independent Businesses, said for many of its members, the tax decrease represents thousands of dollars they’ll get to hold onto. A healthy Unemployment Trust Fund also means some stability in the tax policy for the employers who “were on the frontline” during the pandemic” and an ability to better plan.
Rep. Danny Garrett, R-Trussville, has been heavily involved in unemployment insurance tax and trust fund conversations for years. He said Thursday’s news was a result of several actions by state leaders: Legislation he and Sen. Arthur Orr, R-Decatur, sponsored in 2019 reducing unemployment benefits to 14 weeks; using federal funding in 2020 to replenish the trust fund; grants to help small businesses during the pandemic — and keep people employed; and pushes to reopen businesses quickly after the pandemic.
“When people are back to work, they’re getting paid and businesses are paying into the unemployment fund,” Garrett said.
And then, of course, for the last several years we’ve been maintaining a low unemployment rate, Garrett said.
“It’s a combination of all those efforts that led to this, and it will be a huge benefit to all of our businesses, small businesses in particular,” Garrett said.
Gov. Kay Ivey said the rate decrease was further proof of how well the state is recovering from the pandemic.
“Our economic decisions during this time of national economic uncertainty are paying off — by putting more money in employers’ tills and allowing them to hire more Alabamians, benefiting the state as a whole,” Ivey said. “I’m beyond proud to lead an Administration that is delivering real, effective tax savings to our people.”