Reflecting a trend in cash-strapped states across the United States, California payroll taxes have been raised 24% this year over last by the Employment Development Department. The highest payroll tax increase in the nation - an incredible 168% increase - happened in Hawaii. As Californian employers try to combat the high unemployment rates by increasing their workforces, they are being subverted by states desperate to raise taxes in order to cover staggering debts unemployment related to unemployment benefits.

Nothing less than a vicious cycle, many companies, in attempts to help the economy by hiring the unemployed, suddenly are experiencing serious payroll tax problems. In addition, The higher the unemployment goes, the higher the payroll tax to fund it, damaging company's ability to hire and leading to huge delinquent payroll tax crises with both state taxing agencies and the IRS. Employers in as many as 26 states will face tax increases of between $21 and $84 per employee per year if their state governments don't repay Washington by November 2011. Choosing anonymity, once thriving business owner in Orange County shook her head: "If I go under, there are a bunch of other people that lose profits also, it's not just myself."

Across the country, state governments are borrowing heavily from the federal government to keep paying unemployment insurance benefits Even with the weak job market, the Wall Street Journal notes that most states are raising payroll taxes to pay off the loans. In fact, thirty-one states have borrowed nearly $41 billion from the federal government, and California alone has borrowed nearly $8.8 billion as of mid-November, according to the Labor Department. As these states try to replenish the funds and begin to repay the loans, employers are facing increases in state and federal payroll taxes, a potential barrier to new hiring. Payroll taxes levied by states fund unemployment benefits for up to 26 weeks - longer in some states.

In addition, the federal government requires states to pay benefits even if their unemployment funds run out of cash. As a result, a strapped California has entered a serious financial crisis. As a result, the Employment Development Department is going after payroll tax debtors with a renewed vengeance. California has borrowed billions from the federal government to pay unemployment benefits. Now, in order to pay the money back, the state is leaning on businesses in the form of higher payroll taxes. As businesses across the state hang on by a thread, California has been hit really hard in the economic crisis, and things seem to be getting even worse. Richard Chapman of Kern Economic Development Corporation explains: "The state owes about $9 billion to make up for the money they spent on unemployment benefits and to make that up they are going to have to raise the payroll taxes."

California business owners complain they're helping shoulder budget deficits, and many are resistant to pay their payroll taxes, taking from the trust fund to cover additional costs. Unfortunately, this can be the death knell of a once thriving business, leading to complete disaster. The recession that is profoundly affecting both California and the United States as a whole should not lead to the closing of the doors to your business. The best goal is to keep the doors to businesses open and help companies across the nation survive payroll tax problems and delinquent tax debts.