The California Chamber of Commerce and a broad coalition of business groups are urging state leaders to deliver on the commitments made in California’s 2022–2023 Budget to provide $750 million to California’s Unemployment Insurance (UI) Fund.
The Coalition is also asking the state to provide $500 million in tax rebates to help defray the cost of increasing UI taxes for small business.
Businesses Need Relief
California businesses are facing steadily increasing UI taxes due to the pandemic-era deficit.
Unemployment-related taxes increase by $21 per employee per year when a state’s UI Fund is insolvent for two consecutive years pursuant to federal law. California’s UI Fund has been insolvent since the COVID-19 pandemic, and employers have been paying increased taxes since 2022, with the initial load of increased taxes being due in 2023.
Employers pay $42 per employee per year when the UI Fund is solvent in federal unemployment insurance taxes (“FUTA taxes”). With ongoing insolvency, FUTA taxes are increased by $21 per year per employee, up to a maximum of $434 per year.
Because of these increases, California employers paid an estimated $770 million in additional federal taxes in 2024 (for a total of $4.9 billion in UI contributions) and are estimated to pay an additional $1.2 billion in 2025 (for a total of $5 billion), the Coalition explained in its letter.
The Coalition also pointed out that these amounts do not account for the cost of rebuilding and the added UI Fund drain that the recent wildfires in Los Angeles County will cause as workers tap this critical stopgap and employers begin to pay for those claims via the UI Fund.
As it stands now, California’s UI Fund debt is at historic levels—with total debt over $20 billion. This debt has only grown since the COVID-19 pandemic and state agencies estimate that it will continue to grow in the near future.
“Functionally, this means California employers are facing a decade or more of tax increases, with total payments likely to far surpass the UI-related tax increases following the Great Recession,” the Coalition said.
Recent Wildfires
Recent wildfires have devastated significant parts of Los Angeles County, with thousands of businesses—which provided economic lifeblood and places of community—burned.
As these businesses shut down temporarily (or permanently), their workers will turn to California’s UI benefits for relief—as they should, the Coalition said. Business owners will similarly look to the state for aid in getting through this hard time.
These wildfires highlight the importance of the UI system, as the cost of state-provided unemployment benefits will fall on employers’ shoulders to pay, as the UI system is funded by employers.
Assistance, Rebates Needed
With ongoing tax increases and the unexpected tragedy of the Los Angeles fires adding to UI Fund costs, it is time to aid California’s ailing UI Fund, the Coalition asserted.
In 2022–2023, the Governor’s proposed budget included three key pieces of aid for employers facing a massive UI Fund debt (and related tax increase) due to the COVID-19 pandemic.
First, it included a payment of $250 million to the UI Fund in the 2022–2023 budget year.
Second, it promised an additional $750 million for the UI Fund to follow in the 2023–2024 budget year.
Third, it proposed $500 million in tax rebates for small employers facing increased UI taxes in the 2023-2024 budget year.
Though California employers were disappointed that the majority of aid was being delayed until the 2023–2024 budget year, employers were thankful that aid would be forthcoming, given the nearly $20 billion UI Fund debt, the Coalition said. However, that promised aid did not arrive.
In the 2023–2024 Budget, the promised UI Fund assistance—both the direct payment and the tax rebates—did not materialize. As California’s 2022–2023 budget surplus disappeared, California employers became victims of the state’s difficult budget situation.
“While we understand and acknowledge that California faced budget shortfalls in 2023–2024 and 2024–2025, we believe that the Proposed Budget has a brighter outlook and it is the appropriate time to deliver on these commitments,” the Coalition said.
