HB1509 (2010) Detail

Relative to unemployment compensation for self-employed individuals.


HB 1509-FN – AS INTRODUCED

2010 SESSION

10-2464

06/04

HOUSE BILL 1509-FN

AN ACT relative to unemployment compensation for self-employed individuals.

SPONSORS: Rep. Stiles, Rock 15; Sen. Gallus, Dist 1

COMMITTEE: Labor, Industrial and Rehabilitative Services

ANALYSIS

This bill permits a corporation to exclude the wages of certain individuals from the wages it reports to the department of employment security.

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Explanation: Matter added to current law appears in bold italics.

Matter removed from current law appears [in brackets and struckthrough.]

Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.

10-2464

06/04

STATE OF NEW HAMPSHIRE

In the Year of Our Lord Two Thousand Ten

AN ACT relative to unemployment compensation for self-employed individuals.

Be it Enacted by the Senate and House of Representatives in General Court convened:

1 New Paragraph; Unemployment Compensation; Payment of Contributions. Amend RSA 282-A:69 by inserting after paragraph I the following new paragraph:

I-a.(a) A corporate entity or a limited liability company that opts for corporate status for federal tax purposes may exclude from the wages reportable to the department of employment security and subject to taxation the wages of any individual who meets the requirements of subparagraph (b).

(b) An individual meets the requirements of this subparagraph if 3 or more of the following apply to such individual’s relationship to a corporate entity or a limited liability company:

(1) The individual is a sole proprietor, partner, officer, or director, both in name and in fact.

(2) The individual has an investment or is a stockholder.

(3) The individual formed the entity or became involved in the activity in order to create profits, which for purposes of this subparagraph shall include wages, capital gains, dividends, salaries, commissions, bonuses, board, rent, housing, payment in kind, insurance, disability plans, retirement and similar advantages, and benefits.

(4) The individual controls or has the right to control the business.

(5) The individual has a spouse, parent, child, brother, sister, or step family member of the same relationship who is either an officer, manager, director, investor, stockholder, or partner, who controls or who has the express or implied right to control the business, and such family member has either acceded to the decisions of the individual or delegated rights or authority to the individual.

(6) The individual performs services not required to be done by an officer or director.

(c) The election of such exclusion shall be for 3 years or more and shall be made on or before January 1 of the applicable year. Thereafter, the corporate entity or limited liability company may rescind election of the exemption no later than January 1, for any year, but such rescission shall be irrevocable for 3 calendar years.

2 Effective Date. This act shall take effect 60 days after its passage.

LBAO

10-2464

11/23/09

HB 1509-FN - FISCAL NOTE

AN ACT relative to unemployment compensation for self-employed individuals.

FISCAL IMPACT:

      The Department of Employment Security states this bill will decrease state restricted revenue by $7,296,000 in FY 2011 and $8,512,000 in FY 2012 and each year thereafter and decrease state restricted expenditures by $3,380,000 in FY 2011 and each year thereafter. There is no fiscal impact on county and local revenue or expenditures.

METHODOLOGY:

    The Department of Employment Security states this bill permits owners of businesses that elect to incorporate or elect corporate status in limited liability companies to opt out of being treated as an employee of their business, resulting in the income of owners not being reportable wages to the Department and not subject to the unemployment compensation tax. The Department estimates there are 31,636 in-state employing units reporting wages in New Hampshire. Approximately 40 percent or 12,654 (31,636 * 40%) of these units are corporations or LLC/corporations. Not all the corporate businesses will qualify for this option nor will all businesses elect to opt out of wage reporting. The Department assumes 2 owners per business and a 75 percent participation rate. Based on the assumptions, there will be 18,981 individuals (12,654 employing units* 2 owners * 75 percent) that may be impacted by this change. The Department uses 20,000 individuals in its calculations.

    The taxable wage in New Hampshire will be $10,000 effective January 2010, increasing to $12,000 in 2011, and $14,000 in 2012 and each year thereafter. Most wages are reportable in the first two quarters of a calendar year, so the Department assumes this bill will not have an impact until FY 2011. The average tax rate for the first quarter of 2009 was 2.04 percent and beginning the first quarter of 2010 an additional 1.00 percent emergency surcharge is being added. It is assumed the tax rate of 3.04 percent will be effective for the period of this fiscal note. The estimated decrease in the trust fund is as follows:

                      LBAO

                      10-2464

                      11/23/09

    FY 2011 calculation:

    $12,000 wage base * 3.04 % = $364.80 per individual * 20,000 individuals = $7,296,000

    FY 2012 and each year thereafter calculation:

    $14,000 wage base * 3.04 % = $425.60 per individual * 20,000 individuals = $8,512,000

    The Department states this bill will disqualify some individuals from receiving benefits. It is assumed the average benefit for business owners would be $325 a week and that 1 percent of the 20,000 will be disqualified from receiving benefits. The estimated decrease in expenditures from the trust fund is as follows:

    FY 2011 and each year thereafter calculation:

    20,000 individuals * 1.00% = 200 individuals * $325 average weekly benefit rate = $65,000 per week * 52 weeks = $3,380,000.