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By law, the state must pay back the borrowings and replenish the fund.

As a result, Powell said, "Yes, unfortunately, employers will face higher taxes."

The increase "very likely" will take effect in January, she said. Exactly how much of an increase employers will face has not been determined, she said.

Janet Raymond, senior vice president of economic development and operations for the Greater Providence Chamber of Commerce, said that the increase is "not totally unexpected."

However, she said, "Obviously, we're concerned about anything that increases the cost to do business in this challenging economic climate in Rhode Island.''

Raymond added, "We hope the ecomomy turns around and the fund is able to replenish itself soon."

News of the projected tax increase emerged on Thursday at a budget hearing at the State House before a subcommittee of the House Finance Committee.

The hearing focused, in part, on improvements that the state Department of Labor and Training has made in answering calls, processing claims and reducing delays for the unemployed.

But state Rep. Steven M. Costantino (D-Providence), the committee's chairman, and state Rep. Laurence W. Ehrhardt (R-North Kingstown), also quizzed Powell about the health of the state's unemployment insurance trust fund.

In response, Powell said that the amount of tax that employers pay this year will not be enough to pay off federal borrowings and replenish the fund.

More people are collecting benefits, and the agency is disbursing more money, she said.

About 34,400 people are receiving some type of unemployment insurance benefit through the Department of Labor and Training, up from 25,660 in late January, agency statistics show.

Powell said that the agency expects to pay out about $440 million in overall unemployment insurance benefits for the year that will end June 30, 2010, up from about $333 million for the year ending June 30, 2009.

Powell projected a payroll tax increase to take effect Jan. 1. It will be based on the fund's balance as of Sept. 30. But it is unlikely that the fund will be back in the black by then, she said.

As of Wednesday, the fund was $57 million in the red, she said. That compares with a positive balance of $92 million a year ago.

Powell forecast that the fund will be $86 million in the red by the end of this year.

The tax that employers pay is based in part on the number of workers on the payroll and how much money each is paid.

For this year, an employer pays a tax on the first $18,000 of a worker's wages. For next year, Powell said she anticipates that employers will have to pay a tax on the first $19,000 of a worker's wages.

Because more of a worker's wages will be subject to the tax, employers will have to pay more in tax overall.

But how much of an increase each employer will have to bear will depend on the applicable tax rate. A different tax rate applies to each employer, said Patricia A. Thompson, former president of the Rhode Island Society of Certified Public Accountants.

For example, tax rates for 2009 generally range from a minimum of 1.69 percent to a maximum of 9.79 percent, said Thompson, tax partner at Piccerelli Gilstein & Co. LLP, a CPA firm in Providence.

She offered the following example:

Suppose an employer has 100 workers, each making more than $19,000. Suppose, too, that the employer's unemployment insurance tax rate is 4 percent.

Because there will be an increase next year in the amount of a worker's wages to which that tax rate is applied, the employer in this example would face an overall increase of about $4,000.

That is in addition to a increase that took effect earlier this year, also the result of spiraling unemployment. (Rhode Island's unemployment rate is currently 10.5 percent.)

It is not clear whether the tax rates levied on employers will also rise for next year.

Even if they do not, the increase in the amount of wages subject to the tax would represent another strain, especially for small businesses, "because it comes at a bad time, when the economy is already down," Thompson said.

Rhode Island's maximum weekly unemployment benefit is $528, not counting payments for dependents. With dependents, the maximum can reach $660.

(The state is also paying out an additional $25 a week to the unemployed as a result of federal economic stimulus legislation approved by Congress and signed into law by President Obama Feb. 17.)

Although federal money is used to pay some benefits, the state's unemployment insurance trust fund is still required to pay out benefits, too.