Employer taxes are on the rise again — and the expected result is deeper cuts into benefits and comp budgets.

What’s happening? Due to high jobless rates, states’ unemployment funds are drying up. And to replenish the coffers, several states are raising employer taxes.

36 states will get hit

In total, businesses in 36 states are getting slapped with a higher tax bill.

The lucky ones will end up paying only a few dollars more per worker. Others will pay nearly $1,000 more.

The impact on benefits, comp

By taking more money from employers’ payroll budgets, economists predict this will spell even more trouble for employee compensation and benefit levels.

Some even fear that the hikes will contribute to further joblessness.

Where — and how much

Here’s what some states are getting hit with:

• the average tax for businesses in Pennsylvania will increase to $432 per worker (up from $384)
• Virginia employers will pay $171 per worker (up from $95), and
• employers in Hawaii face a gigantic increase to $1,070 per worker (up from $90 per worker).

More bad news: You don’t have to be in a state where the unemployment fund’s gone bankrupt to see an increase.

Even employers in states where unemployment funds are still in the black face tax hikes.

Example: Texas has increased the average tax on employers to $165 per worker (up from $89).

While there’s no doubt wellness programs have their benefits, little has been made of their drawbacks and hidden costs.

Three pitfalls to watch out for in wellness programs:

1. You get what you pay for

By and large, the cost savings from a wellness program will be driven by how much you’re willing to spend. Generally, you get what you put into them — both in time and money.

In addition, the program has to be tailored to your specific needs. What works for one company may not be right for you.

2. Tough to administer in-house

Many employers find it’s more effective to outsource wellness. Two reasons:

• Employee trust. Many employees are more cooperative with a wellness program if they don’t fear their employer is watching their every move.
• Legal protection. Outsourcing helps insulate you from later claims that the company discriminated against or fired an employee specifically because of his or her health risks.

3. Tax trouble

Some of the most popular incentives offered to employees for living healthier lifestyles (e.g., partially paid gym memberships) are taxable as compensation.

If you offer wellness participants discounts on their health premiums, the Internal Revenue Service caps the incentive at 20% of the total cost of coverage. Anything beyond that has to be considered taxable income.

IRS proposes a crackdown on existing laws that classify employer-issued cellphones as a taxable benefit. The taxes may also apply to text messages on mobile devices, e-mails on company-issued laptops and wireless cards.

Legally, employers are expected to keep detailed records of calls made by employees, in order to show how much of the use is personal and how much is business related. Few companies keep such records for phone calls, and almost none have records to classify text messages or mobile e-mails. 

There is also a chance the existing rules could be eliminated rather than enforced. A Senate bill sponsored by  John Kerry (D-Mass.) and John Ensign (R-Nev.) would eliminate the requirement.

IRS has said it is trying to simplify the record-keeping requirement of the law to make it easier for employers to comply. The agency is seeking public comment until Sept. 4.  IRS has suggested three options:

•  Allowing employers to classify 75% of work cellphone use as work-related while paying taxes on the remaining 25 percent%.
•  Requiring employees to provide proof that they have a personal cellphone to use during work hours, and not taxing the work-issued cell phone.
• Letting employers use an IRS-generated statistical sampling to determine the average workers’ personal use of cellphones, and paying taxes on the average. 

The plans that would be affected would be those that exceed the value of the standard plan offered to federal employees (currently about $13,000 a year for a family of four). An employer-provided plan worth less than that level would remain tax-free,  while any benefit exceeding the cap would be taxed as part of an employee’s compensation.

Such a tax, if adopted, would likely be phased in over the course of several years.  A higher tax threshold and exemptions for unions would make the tax more politically viable but would diminish the amount of  revenue it would raise to provide coverage for the uninsured.

Last month, a congressional committee discussed repealing the tax deduction allowed for certain large medical expenses or creating a tax on flexible savings accounts and health reimbursement accounts . A more dramatic proposal — taxing half of all employer-provided health premiums -was also discussed but is unlikely to get out of committee.

Meanwhile, President Obama  has suggested a limit on the value of itemized tax deductions for families earning more than $250,000 a year.

Democrats in both the House and Senate have pushed for government-sponsored insurance for people who have trouble finding coverage through an employer or individually. The idea is adamantly opposed by most Republican legislators.

1. Repeal of some Bush tax cuts. Obama favors:

• reinstating the pre-2001 top individual tax rates of 39.6% and 36% for families making more than $250,000 ($200,000 for singles)
• making permanent the 10%, 15%, 25% and 28% individual tax rates, and
• restoring the personal exemption phaseout and itemized deduction limitation phaseouts at an increased threshold of $250,000 for joint filers ($200,000 for singles).

 
2. Higher FUTA wage base. Employers would have to contribute more into the federal unemployment tax system – especially those located in states that still have a $7,000 wage base.

3. Changes in healthcare financing. Although you probably won’t see a universal healthcare push, employers that don’t offer or make a “meaningful contribution” to the cost of employee health care will probably have to contribute a percentage of payroll toward the costs of a national plan. That could affect employee payroll deductions.

4. Increased payroll taxes. Maybe you’ve been hearing reports of additional Social Security taxes, but they likely wouldn’t take effect for years and they’d be phased in over a long period. Any such tax would be at a rate of between 2% and 4% (split between employer and employee). It would apply to income above $250,000 and:

• eliminate the $102,000 ceiling for the Social Security tax, and
• create a “donut hole” exemption for earnings between $102,000 and $250,000.

Health insurance
Someone who’s never been sick – or never had to pay the bills for being sick – probably has little understanding of what’s involved with health insurance, much less the definition of “deductible” or “co-pay.” 

Take a little extra time to explain your organization’s plan, if you have one, and health insurance in general. No, it’s not your responsibility to make sure they don’t make a mistake. Yes, it’ll make you a better person. 

Taxes
For most new workers, taxes represent something their parents complain about or some mysterious disappearance of part of their paycheck from last year’s summertime job. Sit with them and go over the responsibilities and realities of filling out IRS Form W-4 and deductions for Social Security, Medicare and state and local taxes. 

And if you do a good job of explaining, they’ll be complaining like their parents in no time at all. 

Retirement
If you come across a 23-year-old who’s given retirement a lot of thought, you’re dealing with either (a) the smartest person in the world or (b) the scariest. Most people who are taking on a first job need a primer on 401(k)s and other types of retirement plans – how they work, who pays for them, and the expected payoff. 

What seems to work best is the use of projections. Show newbies what can happen with a regular contribution to a retirement plan and what happens when they don’t contribute. It’s true that most of the rookies can’t imagine the day they turn 60 and their financial needs on that day. All you can do is make them aware.