Senator Charles Schumer (D-NY) has announced that he will be introducing new legislation in Congress to waive the interest payments that many states must pay on federal unemployment insurance (UI) loans. A provision in the American Recovery and Reinvestment Act (ARRA) permitted states to take interest-free loans from the federal unemployment trust fund through 2010. Congress failed to include an extension of the interest-free loan provision in the debt ceiling compromise negotiated several weeks ago. Currently, 27 states and the U.S. Virgin Islands have outstanding federal unemployment loans. They must pay interest on these loans by Sept. 30, 2011, unless the ARRA legislation is extended. Alabama is one of the 27 states that has an outstanding federal unemployment loan.

Many states (including Alabama) are passing the interest charges on to employers. For example, New York State has borrowed approximately $3 billion from the federal government and will be required to pay $95 million in interest on this loan by the end of September. It recently imposed an interest assessment surcharge (IAS) on most employers to help it pay the interest on the federal loan. The surcharge can be as high as $21.25 per employee. If Schumer's legislation were enacted, the surcharge would be refunded to employers. Other states that have already imposed surcharges would also be required to refund the assessment to employers.

"At a time when we need to be doing everything we can to help our businesses ... create and retain jobs, this tax is an anchor that will only drag us down," said Schumer. "We need to free small business owners from the shackles of this fee and instead help them invest in their business to create new jobs. This is a whopping $95 million that should go to hiring more workers and reinvesting in businesses to help them grow. That's one way to get our economy back on track".

Senator Schumer’s 8/16/2011 press release can be viewed at http://schumer.senate.gov/Newsroom/record.cfm?id=333817.

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