The House Appropriations and Revenue Committee passed HB 495 unanimously today. This legislation will create a permanent mechanism to repay the federal interest on the unemployment insurance loans required to pay benefits during the economic downturn.
Without a plan to repay the interest owed to the federal government, the federal government will deem Kentucky out-of-compliance and Kentucky employers will be faced with a massive $600 million tax penalty. This makes it critical that a solution is passed in this legislative session in order to meet the obligation this September and avoid default.
Kentucky’s economy is still tenuous and we need to make every effort possible to prevent additional increases in the cost of doing business. The Kentucky Chamber opposed all efforts to attempt to pass a tax increase this year. That is why the Kentucky Chamber and other employer groups support the plan embodied by HB 495, which will:
- Prevent default and a $420 per-employee ($600 million) tax penalty
- Prevent an immediate tax increase to fund the interest charges
- Temporarily finance the obligations to the federal government
- Require the governor to seek a FUTA cap in the earliest possible timeframe
- Level out the FUTA taxes to prevent higher per-employee taxes
- Create a dedicated payment mechanism less than or equal to the federal increments
Addressing this unemployment interest payment is the most consequential issue facing the business community in Kentucky this session. We urge you to contact your state representative at 1-800-372-7181 and ask for their support for Kentucky employers and to vote yes on HB 495.
The chart below illustrates the stark reality of a major federal tax penalty that will be assessed on all Kentucky employers if we do nothing to address this problem. It illustrates how HB 495 will even out the cost of the federal unemployment taxes and minimizes the impact on employers.