As Maryland Recovers, Unemployment Insurance Tax Drops

by Andrea Roethke

The Maryland Department of Labor, Licensing and Regulation delivered welcome news to employers Monday.  After three years of elevated unemployment insurance tax rates, relief is coming in 2013.  Many employers will see their tax rate cut in half from $187 to $85 per employee, and all employers will see at least a 22 percent cut.  Most importantly, this is a sign that people are getting back work and that Maryland’s economic recovery is on solid footing.

It is also a sign that our unemployment insurance system is working as intended.  When the recession hit, many were not sure we’d be able to weather the storm while still providing adequate benefits to workers.  The fact that rates are dropping shows that it is possible to maintain a strong safety net without putting undue strain on employers.

Each year, Maryland employers pay a small tax on wages to support the unemployment insurance trust fund.  The more workers a company lays off, the more they pay into the system.  During good times, the trust fund builds a healthy reserve.  When recession hits and claims spike, the reserve is used to pay benefits to laid-off workers while they seek new employment – money which is quickly recirculated into the economy as it’s spent on essential goods and services.

As expected, the high number of claims during the recession caused the previously-healthy trust fund reserve to dwindle.  This triggered rates to automatically increase.  Now, as more Marylanders are getting back to work and claims have receded, we’re moving back toward lower rates.

In the depths of the recession, Maryland made moves to strengthen the UI system and expand coverage to workers who were previously falling through the cracks.  Some feared that these changes would bog down the system and keep tax rates indefinitely high.  The quick return to lower rates shows those fears were unfounded.  The unemployment insurance system has never seen a recession as deep as what we recently experienced, and Maryland’s balanced system helped the state get through without sacrificing the integrity of the safety net.