Who Pays Unemployment Taxes?

Recently while I was trucking in Pennsylvania, the subject of unemployment taxes came up on my CB (Citizen's Band) radio.

A trucker was grousing about how he did think it was fair that he had to pay unemployment taxes to provide benefits for all the unemployed. He thought it was just another form of welfare. I made the contention that it was only employers, not employees who paid unemployment taxes. Another truck driver chimed in that he had his pay stub handy and it clearly showed withholding for unemployment.

With some exploration, I found that both of these truckers were local drivers who resided in Pennsylvania. I then stated that this was something new to my experience. I had always assumed unemployment taxes were paid only by employers and the expense hidden from employees (it is still an expense to the employer - an expense for each employee he takes on), but perhaps Pennsylvania was different. I stated that I did not think this was true in most states. None of the truckers listening to the conversation from other states contradicted me.

I was motivated to do a little research on the internet. After starting my search using Google, I was not coming up with any real pages that solved the mystery for me. In fact, one website I visited claimed it was illegal to withhold money from employee paychecks to pay for unemployment compensation insurance. It seemed like most of the sites I visited were guilty of the same assumptions I had made. If unemployment is paid for in their state entirely by the employer, then this must be true in all states. Remembering that www.ask.com allows queries in plain language, I expanded my search there.

With the assistance of Ask I came upon a page (see here) at the Business Owner's Toolkit website that yielded some light on the subject. Please note that the linked to page states that only two states assess unemployment taxes on employees, and these are New Jersey and Alaska. But what about Pennsylvania? At the bottom of this page is a graph that allows you to click on individual states to find tailored information about unemployment taxes for the state in which you do business. Clicking on Pennsylvania, I noted that, yup, there is withholding in Pennsylvania from employees checks for unemployment taxes. Clicking on all the rest of the states, I noted that two states, Alabama and Washington, allow withholding as an option (perhaps to force the employees to pay a portion of the employers taxes). Anyone want to place a bet that in these two "optional" states it will not take long before the withholding becomes the norm?

So there we have it. Three of fifty states have mandatory withholding from employees paychecks to pay for unemployment. An additional two states have this as an option for employers.

Perhaps we are starting to see cracks in the dam. With the current economy, most state's are finding it difficult to fund unemployment compensation benefits and they are looking for additional revenue. I will not be surprised if an increasing number of states resort to passing part of the burden onto employees as part of the solution to their deficit woes now that the first cracks have appeared in the dam. Those most capable of making campaign contributions are going to have the loudest voices in the debate, and they (the employers) are going to be arguing they should not have to shoulder the entire cost alone.