Unemployment surge forces big payroll tax increase

Some Hawaii businesses expect their state payroll taxes to increase more than six-fold in 2010 as a result of lingering unemployment that has caused the state jobless fund to drop quicker than anticipated and a legislatively mandated resetting of payroll taxes to pre-recession levels.

The outlook is one that businesses and legislators never imagined when they worked together in 2006 to temporarily cut the payroll tax, which at the time was the highest in the nation.

With the tax now scheduled to be reset in January, businesses are scrambling to get legislators to quickly find a less-damaging way to replenish the unemployment fund, which was projected to hit a low of $125 million by the end of this month and run out of money by late next year.

A newly released jobless rate forecast and recalculation of rates shows the fund balance won't fall as much as originally expected. This means the state may have to borrow less from the federal government to get through the next year and a half. But this doesn't improve news for employers.

The fund dip will still trigger a large increase in unemployment insurance taxes employers pay; on average, the annual rate paid by employers will jump from $90 to $1,070.