When deficits reach such a mass, options for paring them down include an increase to the tax rate for employers, a reduction in unemployment benefits, an addition of other state, federal or private sector funds, or some combination of those efforts.
Illinois unemployment deficit threatens to ‘cripple’ businesses, claimants | Govt-and-politics
If any state maintains an outstanding balance of federal borrowing for too long, federal law stipulates that Federal Unemployment Tax Act credits for businesses would decrease incrementally, eventually increasing an employer’s tax burden from about 0.6% to 6%. But no states are in danger of a reduction to that credit in 2021.
Illinois law, however, builds “speed bumps” into the repayment process which encourage labor and business interests to come to the negotiating table to address deficits in a timely manner. Those “speed bumps” initiate penalties that, beginning in 2022, would include shortening the benefit period from 26 to 24 weeks, lowering wage repayment for claimants from 47% to 42.4%, and an increase to the formulaic employer tax rates, according to IDES.
Rob Karr, CEO and president of the Illinois Retail Merchants Association, estimated that the “speed bumps” would essentially raise taxes by $500 million on employers and cut $500 million in unemployment benefits.
Karr said IRMA joined other business and labor organizations in submitting a letter to Illinois’ congressional delegation to encourage further federal aid, but there’s no timeline yet as to when, or if, such aid would be coming.