New Hampshire unemployment taxes set to drop, but some employers will see bigger decreases than others

Unemployment taxes will be going down for most New Hampshire businesses next year, thanks to a historically low number of unemployment claims and the unemployment trust fund growing to nearly $350 million. Taxes actually would have gone down even more if not for a recent change in the law.

As it is, unemployment tax rates will fall an average of nearly 30 percent – a figure Gov. Chris Sununu quickly highlighted, in the midst of his reelection campaign.

“It is no accident New Hampshire has experienced an explosion in businesses calling the state home since the pandemic,” said Sununu in a press release. “We have established a track record of showing that we can lower taxes while maintaining a solvent, dependable unemployment fund.”

The average rate tax reduction is accurate, but it’s not an across-the-board tax reduction. It’s more complicated than that.

Businesses with the highest unemployment taxes will see their taxes go down the most in absolute terms, but they will see a smaller percentage decrease. Businesses with the lowest taxes won’t see any benefit at all, and some businesses might see more than four-fifths of their bill go away.

Currently, businesses pay an average 1.7 percent on the first $14,000 of wages, which comes out to $238 per employee. But that rate varies depending on the health of the trust fund.

At the height of the pandemic, the trust fund was down to $50 million, triggering a tax increase of half a percent, to roughly 2.2 percent. But Sununu, by using his emergency powers to transfer $50 million in federal CARES Act money, shored up the fund to more than $100 million, bringing the tax rate down to normal again.

When the trust fund rises to more than $250 million and stays there for an entire quarter (which happened during the third quarter), the rate goes down a half of percent for the next quarter (the fourth quarter), resulting in an average tax rate of 1.2 percent of that first $14,000.

That translates, on average, to $168 per employee, a $70 savings. That’s where the average 30 percent (or actually 29.41 percent) comes from.

But those are averages. Seasonal employers that lay off employees mor might pay as much as 7 percent of the first $14,000. So their rate would fall to n6.5 percent — about a 7 percent decrease. Companies that have no layoffs pay a 0.1 percent rate, the lowest it can go. So that half-percentage cut won’t mean anything to them. All new employers start with a 2.7 percent rate, and they would see an 18 percent cut. And employers that now pay a 0.6 percent rate will see an 83 percent reduction as the rate falls to the minimum

Higher thresholds

The cuts will take affect this, the fourth, quarter but most employees won’t see the cuts until the first quarter.

The state is also on nearing the next tax-cut threshold of $350 million, which would mean another half-percent rate cut.

Interestingly, the next threshold after $250 million used to be $275 million, but the Sununu administration proposed, and the Legislature agreed, to raise the discount threshold in the last budget to $350 million. Under that change, the previous $300 million threshold is now $400 million.

Under the old law, explained Richard Lavers, deputy Employment Security commissioner, “tax rates were going up when businesses could least afford it. This way, we increase the second tier [or threshold for the second discount] when employers can afford it more.”

The question is whether those higher thresholds will be reached, and that depends on the economy, which most experts expect to sour. In September the unemployment rate did tick up slightly, to 2.2 percent from 2 percent, though that is still near historic lows.

Lavers said the jobless rate uptick “is actually good news” because he hike reflects 1,000 people who were previously “sitting on the sidelines” but are now actively looking for work, and given the labor shortage, they should soon find it.

There was some other unsettling news for employees in the September unemployment report.

Average wages went up in September by 2.7 percent. In August, they rose 2.9 percent. Service workers’ wages rose by only 1.7 percent in September. Meanwhile, inflation reached 7.2 percent in New Hampshire that month.