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Unemployment Tax Increasing on most Alabama Businesses

Reprint from the Birmingham Business Journal:

A year of record unemployment claims due to the Covid-19 pandemic will lead to a sharp increase in the Alabama unemployment tax for the state's businesses and many nonprofit organizations.

The Alabama Department of Labor anticipates employers will see an increase of 77% to the unemployment tax to replenish the Unemployment Insurance Trust Fund that businesses pay into to fund unemployment claims.

Nearly 892,500 unemployment claims were filed from the start of the pandemic in March to the end of the year. The state paid $813 million in unemployment compensation benefits in 2020. That’s compared to $144 million in 2019.

Taxpayers will see an increase of $40 per employee per calendar year. The new rate will be effective throughout the year, and the first payment for the quarterly tax will be due in April.

Churches are exempt from the unemployment tax, but nonprofits with four or more employers are liable for the tax.

The increase is actually lower than some of the initial projections. The state was able to allocate $385 million from CARES Act funding to the Unemployment Insurance Trust Fund, which helped negate some of the impact.

“We now believe the impact will be less at approximately a 77% increase instead of a 92% increase,” said ADOL spokesperson Tara Hutchison.

Even though the increase is not as high as it could have been, the increase could still pose a challenge for a number of businesses still operating on thin margins due to the effects of Covid-19 – particularly those in the retail and restaurant world.

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