State Says New Tax Cut Will Save Businesses $350M
State officials said Tuesday that Minnesota businesses can expect to save nearly $350 million over the next two years due to a cut in unemployment insurance taxes.
The Department of Employment and Economic Development (DEED) said that at the start of 2014, for-profit employers will pay lower taxes toward a trust fund that provides temporary benefits to laid-off workers.
Minnesota businesses currently pay unemployment insurance taxes on the first $29,000 of annual wages per employee, said DEED, which manages the Minnesota Unemployment Insurance Program. Effective January 1, the base tax rate they pay on that amount will reduce from 0.5 percent to 0.1 percent. And the additional 14 percent assessment that employers paid on their total unemployment insurance tax bill will be eliminated.
According to DEED, the trust fund went into deficit in 2009 because of a growing demand for unemployment insurance benefits. As a result, the state had to raise the unemployment insurance tax rate on businesses.
However, as the Minnesota economy has improved, claims for unemployment insurance have dropped to their lowest level in almost a decade, and now the fund has reserves of $1.2 billion, DEED said.
“Given evidence of an improving economy and a healthy trust fund balance, the unemployment insurance tax cut is a smart move that will result in real savings for Minnesota businesses,” DEED Commissioner Katie Clark Sieben said in a statement.
In order to reduce the tax rate for 2014, the state said the trust fund had to have a minimum of $800 million; for a reduction in 2015, it has to have a balance of $900 million by September. Even after the cut, state officials said they expect the fund to exceed $1.2 billion over the next two years.
DEED said construction companies in Minnesota are among the businesses that will benefit most from the reduced tax rate. Fridley-based Thor Construction told officials that it expects to save about $500 annually, per worker, after the cut.
“Construction companies, with high volumes of seasonal workers, often have a harder time adjusting to the tax climate,” Thor CEO Ravi Norman said in a statement. “This unemployment insurance tax cut is a great mechanism for savings in our industry. It will add thousands of dollars to Thor’s bottom line over the next two years, which will enable us to further reinvest in our employees as a greater competition for talent occurs during this projected local construction boom.”