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Alabama’s unemployment tax set to nearly double

Because of a massive increase in unemployment claims, Alabama’s unemployment tax rate in 2021 will go up 92 percent.

(STOCK PHOTO)

The unemployment tax paid by Alabama businesses is going to essentially double. At the end of January, the Alabama Department of Labor will send out its final tax rates for 2021. The average per-employee rate paid by employers will jump from an average of $52 to $100 or more. 

“It’s a 92 percent increase,” said Alabama Department of Labor spokeswoman Tara Hutchinson. “At this point, I don’t believe there’s anything that can be done in time to prevent that rate increase. There just isn’t enough time.”

The cause of the rate increase, Hutchinson said, is related to the massive amounts of unemployment compensation paid out during the pandemic and ADOL’s decision to reinstate fees that it initially waived at the start of the pandemic.

When the pandemic initially hit, and businesses were forced to close or severely limit services, ADOL made the decision to waive fees requiring employers to pay for layoffs that were outside of their control. However, as the COVID pandemic carries on, the unemployment trust fund is in danger of going broke, and ending the life-sustaining compensation that tens of thousands of Alabamians are relying on. 

The only ways to offset those losses are by moving funds from other sources into the trust fund or by reinstating the fees, or both. 

ADOL is doing both. So far, it has taken $385 million in CARES Act funds for the fund. That amount has significantly reduced the total bill that businesses will pay. 

“We were looking at about a 500 percent increase without those funds,” Hutchinson said. “That sort of an increase would have resulted in many, many businesses around the state closing their doors.”

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That might still be the case for some businesses. While other states have found ways to offset the losses and prevent businesses from paying massive taxes for a situation that was out of their control, Alabama has not. And now, it’s likely too late to stop the taxes. 

“Our office is required by law to have those rates submitted by the end of this month,” Hutchinson said. 

The Alabama Legislature, which would have the power to divert money to the unemployment fund, isn’t scheduled for session until February. 

Hutchinson said it’s not clear whether failing to provide money for the fund would violate federal laws. 

“The biggest issue is that the system isn’t set up to deal with the sort of quick change we’ve seen during this pandemic,” Hutchinson said. “These rates are set by your employment figures, and if you’ll recall, just before the pandemic began we had record low unemployment. During those times, funding for the system and the department — all of which comes from the federal government — is much less. The system is set up for gradual increases and decreases, not what happened.

“This pandemic has exposed a lot of issues that we might want to consider correcting going forward.”

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Josh Moon
Written By

Josh Moon is an investigative reporter and featured columnist at the Alabama Political Reporter with years of political reporting experience in Alabama. You can email him at [email protected] or follow him on Twitter.

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