(The Center Square) – Many California business owners are shocked by the state’s payroll tax increases. $55 billion COVID-19 pandemic-era unemployment and payroll fraud — which exceeds NASA’s annual budget — results from automatic approval of claims.

States that fail to repay federal unemployment compensation loans, as California and a handful of other states have done since the pandemic, are automatically subject to rapid increases in federal payroll taxes until that the debt is repaid.

Chef Andrew Gruel, who owns and runs Calico Fish House in Huntington Beach, spoke to X to explain his recent experience paying his employees in a post that has since garnered more than 16 million views.

“We just handled payroll. Social charges were 2K higher than those calculated. We called the payroll company. said Oatmeal. “They explained (in summary) that California has a budget deficit and that the federal government wants to recoup the money it loaned to California for unemployment insurance that it ‘lost.’ They compensate by charging business owners.

While the state was responsible for managing unemployment benefits during the lockdown, business owners are footing the bill.

“California spent billions of dollars on unemployment during COVID, much of which was fraudulent. » said Rep. Bill Essayli, R-Corona, on X in response to Gruel. “Now businesses have to foot the bill. Newsom could have paid down the deficit, but instead chose to provide $5 billion in health coverage to illegal immigrants.

Oklahoma Governor Kevin Stitt used the opportunity to encourage businesses to abandon California and its taxes and look to lower taxes elsewhere.

“Crazy hikes… in payroll taxes to hide government spending in California. » said Stitt on X. “Oklahoma is open for business. Come to a state where you are not responsible for the state’s financial mismanagement.

The California Budget and Policy Center, a center-left think tank, said in an October report, that the state is not collecting enough money to pay current unemployment benefits, let alone repay the $21 billion unemployment benefit debt owed to the federal government.

“Even today, with a relatively low unemployment rate of around 5 percent, California does not generate enough revenue to pay current unemployment insurance benefits, much less pay down its trust fund debt.” , declared the CBPC. “In addition to regular SUTA taxes, California employers pay a 15% surcharge to repay the trust fund loan, but this additional income is still not enough to reduce the principal. »

The CBPC also said the state’s debt to the federal government is so high that the principal owed continues to rise.

“The state Employment Development Department projects that at current repayment rates, the outstanding balance of federal UI loans will reach nearly $22 billion in 2025,” CBPC continued.

Earlier this year, The Center Square examined reports from the nonpartisan Office of State Legislative Analysts on the state’s unemployment insurance debt, revealing that analysts expect unemployment benefit shortfalls to widen in coming years, even in a growing economy.

“The administration projects that this imbalance will increase to approximately $1.6 billion per year in 2024 and 2025,” LAO wrote. “Historically, benefits paid have only exceeded contributions during major economic recessions – most recently, during the pandemic and the Great Recession. »

Automatic tax increases triggered by owing the federal government on unemployment benefits borrowed for two years or more amount to $21 per employee per year, or about $400 million more per year for the State.

California, New York and the U.S. Virgin Islands are the only jurisdictions subject to payroll tax increases. Connecticut and Illinois had gone into debt and were subject to payroll tax increases, but have since paid off their outstanding loans, while the Virgin Islands have had an outstanding balance since 2010.

The Department of Labor says the annual federal tax will be increase to $105 per Californian employee for 2024, up compared to the base of $42.

From the third year of automatic increases, i.e. 2025, companies are subject to a additional increase in addition to the existing automatic hike. In the fifth year, 2027, an even higher reduction will come into effect. New York has a state-specific employment surcharge to repay interest, but California do not.