Reynolds signs bill reducing unemployment insurance taxes for Iowa businesses

PLEASANT HILL — Iowa businesses will see a $1.2 billion reduction in unemployment insurance taxes over the next five years under legislation signed by Republican Gov. Kim Reynolds.

The governor signed Senate File 607 at US Erectors, a steel erection company in Pleasant Hill on Thursday, surrounded by US Erectors employees, state lawmakers and officials.

Reynolds, who initially proposed the legislation as a priority during her Condition of the State address in January, said the tax reduction will save Iowa businesses money that they can reinvest in their employees.

“This bill streamlines Iowa's unemployment insurance tax system right, bringing overdue reform to how we support our workforce and how we support the businesses that create jobs across our state, while most importantly, keeping the fund healthy and sustainable for the long term,” Reynolds said.

Starting July 1, the legislation will cut the taxable wage base in half and lower unemployment taxes to a maximum rate of 5.4 percent on wages up to about $19,000 per employee, as opposed to the current 7 percent on wages up to about $38,000.

The bill also will reduce the number of tax tables, effectively cutting overall tax categories, and encourage businesses to reinvest savings in their employees.

The legislation, which was passed along party lines in the Republican-controlled legislature, will reduce the Unemployment Trust Fund by roughly $63 million, to $77 million annually and would leave the balance at an estimated $1.77 billion in 2030, according to the nonpartisan Legislative Services Agency.

Iowa’s Unemployment Trust Fund Balance stands at an all-time high of $1.8 billion and far exceeds what is needed to support Iowans, according to the governor’s office. Iowa ranks ninth in the country for unemployment trust fund balance, ahead of more populous states.

More than $700 million of that comes from one-time federal pandemic relief funds tapped by Reynolds to shore up the state's unemployment insurance trust fund and avert an increase in tax rates as pandemic-related layoffs took a major hit on the state’s unemployment funds.

Democrats in the Iowa Legislature and representatives from Iowa labor unions criticized the bill during this year’s session, saying they worry it could deplete the trust fund in the long run and put Iowa workers at risk during times of economic instability.

“While Iowa families struggle and Iowa’s economy ranks dead last, Governor Reynolds and Republican lawmakers are handing out a $1 billion tax break to big corporations, paid for by raiding funds meant for laid-off workers,” Rep. Dan Gosa, a Democrat from Davenport, said in a statement Thursday. “In 2022, Iowa Republicans slashed unemployment from 26 weeks to 16. Now they’re handing out tax breaks to corporations that lay off workers and ship jobs overseas. Iowa workers shouldn’t be footing the bill for corporate tax breaks.”

The bill comes after lawmakers passed and Reynolds signed into law a cut to unemployment benefits in 2022. Iowa shortened the number of weeks that Iowans can receive unemployment benefits from 26 weeks to 16 weeks.

Iowa Workforce Development Executive Director Beth Townsend said Iowa employers paying taxes will see overall reductions to unemployment taxes ranging from 40 to 60 percent.

“That's a huge, huge saving for employers,” Townsend said. “They'll have money to reinvest in their employees, expansion and growth moving forward.”

US Erectors CEO Brad Churchill said the money saved by the reductions will allow the company to reinvest the savings in things like hiring, wage increases, purchasing new equipment and expanding their facilities.

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The company is projected to save $85,000 over the next year due to the legislation.

“This legislation provides meaningful relief to employers across Iowa, while maintaining a full scope of benefits toward employees during their time in need,” Churchill said. “Early projections and estimates show the bill would generate a savings of up to $800 million for businesses statewide.”

Gazette Deputy Des Moines Bureau Chief Tom Barton contributed to this report.