Maryland avoids higher taxes by paying back unemployment loan

Saturday, February 2nd, 2013 By

Unemployment

That status of unemployment in Maryland is better than in many states. Image: Flickr / labor2008 / CC-BY

The long-term costs of unemployment on state and federal government reserves are adding up. For 60 percent of states, unemployment trust fund reserves have simply run out. The state of Maryland has paid back their federal loan, which will save the state millions of dollars.

Maryland unemployment loan

In order to keep paying out unemployment benefits, 30 states have been required to take short-term loans from the U.S. Treasury. These loans have been interest-free for the last two years, thanks to a provision of the stimulus bill. These literal payday loans kept Maryland unemployment benefits flowing, even though the trust fund had run out of money to pay out benefits.

Interest on short-term federal loans

On Dec. 31, 2010, the federal treasury bonds that have been paying unemployment benefits will start accruing interest. This does not mean that states will no longer be able to get these short term loans. It does, however, mean that the loans will start accruing daily interest. The states will owe that interest directly to the U.S. Treasury. Estimates put the amount of interest owed on these loans somewhere around $2 billion in 2011, and up to $65 billion by 2013. The employer obligation for unemployment taxes will also be going up in 2011, with minimum unemployment insurance rates increasing by as much as 100 percent in some states.

Maryland avoids federal interest

Though 30 states have taken out short term loans to keep their unemployment checks coming, most will be liable for the interest of these loans. The only way states have to avoid this interest is to pay back the money borrowed from the federal government. Four states with dropping unemployment rates have been able to pay back their loans. Maryland, New Hampshire, South Dakota and Tennessee are going to be free of the interest obligations of their loans. Maryland has been able to do this thanks to their steadily dropping unemployment rate — a luxury many states simply do not have.

Sources:

National Conference of State Legislatures

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