That isn’t a default, the loan is still being paid by the co-signer. Even if his nephew took out the loan and didn’t have him for a co-signer as long as the uncle made the payments it is not in default. The loan is being paid.
Andy
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Yes, the loan is being paid. But the nephew has defaulted. For example, if a company you worked for doesn’t meet its pension obligations then the Pension Benefit Guaranty Corporation steps in. You are still getting paid, but the company defaulted.
DB2
Always good to have. Thanks.
DB2
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Except in this case, California is both me and my nephew. There is only one party responsible for the loan.
When I saw the title I thought “Wow! This is Huge!”
Turns out there is nothing to see here.
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If I read correctly, when a state such as California or Connecticut doesn’t repay the Federal loan then the unemployment tax rate on businesses in that state goes up each year that the debt is in arrears.
DB2
Roughly correct. The rate goes up with the proceeds from higher federal unemployment tax on employers going to repay the loan.
–Peter
DB2
It varies Bob by state and industry. In Utah they have a maximum of 7.2% 
You can see each state and some states it will take you to their page to check it out.
Or…your nephew tells you that he’s lost his job and won’t be able to make payments in the future, so you make the payments. Nobody has defaulted.
1 Like
Andrew Gruel, what an unfortunate name for a chef…reminds me of my third grade teacher, Mrs. Dumass.
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True, I suppose. The state just decided not to send back the money (unlike the vast majority of the states) and business owners were stuck footing the bill.
DB2
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Or Mr. Oxsmaul. First name Michael.
So now operating a business in CA comes with a higher tax burden. Got it.
What’s your point here? As a tax professional all I can say is that Chef Gruel didn’t do his homework. Or he failed to hire qualified professionals to advise him.
As is evident from the resurrection of this two year old thread, this has been the situation in California for a few years now. This isn’t some secret, nor is it anything new.
And the basic facts remain the same. CA got money from the feds to pay unemployment benefits. CA state unemployment tax rates are already at the maximum allowed by state law. So it takes action by the state legislature to change the law to collect more taxes from employers.
Rather than change state law, it’s easier to let the Feds raise their tax since the law for that is already in place. The money is being collected from employers either way.
—Peter
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And, as the OP stated, CA didn’t pay it back. It could have when it had a budget surplus of $120 billion. Instead, it pushed the loan repayment onto employers. As the chef noted, not an example of being business friendly.
DB2
Clearly you are not paying attention. In either case the expense would be passed to the employers; either by CA directly or by the Feds.
JimA
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No so. As Peter pointed out, CA unemployment tax rates are maxed out. California could easily have paid back the money from the Feds with its huge budget surplus, but chose not to.
DB2
Clearly I have failed! Employers are going to be paying this expense; why should the taxpayers be paying the expenses of unemployment. There are two ways to do this. Either the state increases the UI tax rate or have the Feds increase their tax rate. Since CA is not able to increase the UI tax rate as it requires legislative action; it is easier and probably more efficient to let the Feds deal with the issue.
Or do you just want the taxpayers to take the hit?
JimA
But as I pointed out Utah’s are much higher and I am sure you can find other states. So I think your argument is rather pedestrian. I think it would have more clarity if you put the states in order of who has the highest possible business tax. It’s like arguing that your child is the smartest in the country when in reality they are just mediocre.