Last updated: May 19, 2021 (changes since last update on April 30, 2021 will begin with **NEW**)
Unemployment claims filed during this record surge had a negative impact on 2021 SUI tax rates and is expected to continue for years to come.
In this article:
- Impact on 2020 SUI Tax Rates
- Impact of Computation Dates on SUI Tax Rates
- SUI Tax Rating Methodologies
- Solvency of the SUI System
- State Trust Fund Balances
- Federal Title XII Advances
- Federal Legislative Actions
- State Legislative Actions
The COVID-19 pandemic has created an unprecedented surge in initial state unemployment insurance (“SUI”) claims. **NEW** During the 60 weeks ended May 8, 2021, there were approximately 86.9 million initial unemployment claims filed.1 This is the lowest level for initial claims since March 14, 2020 when it was 256,000. The COVID-19 virus continues to impact the number of initial claims and continued unemployment. The past 60 weeks mark the highest weekly levels of seasonally adjusted initial claims in the history of the seasonally adjusted series. The previous high during any single week was 695,000 in October of 1982.1
Seasonally Adjusted U.S. Weekly Unemployment Claims2
As shown in the above graphic, the Great Recession caused a slow increase in initial unemployment claims. In contrast, there was a sharp spike in claims due to COVID-19. It’s not just the sharp spike in claims that are concerning, it’s the volume of continued weekly claims. Quarters of unprecedented initial claims, and continued claims, have had a compounding effect and put stress on the SUI system as a whole.
Average U.S. SUI tax rates declined over the past eight years (from 3.48% in 2012 to 1.78% in 20203). The increase in unemployment claims associated with COVID-19 did not have an impact on already established 2020 calendar year rates.
For a majority of states, the computation date used to determine SUI tax rates for the upcoming calendar year is June 30. For these states, the computation date for calendar year 2021 is June 30, 2020. Typically, three or four months does not leave much time for the accumulation of charges to have a material impact on 2021 rates; the impact is likely to be felt more in 2022. However, because of the unprecedented volume of initial claims, the accumulation of benefits has had an impact on calendar year 2021 rates, all of which have been issued for the state of Texas.
The primary cause for the surge in initial unemployment claims is a reduction in workforce. This causes a reduction in taxable wages used in the calculation of SUI tax rates. An immediate reduction in taxable payroll can exacerbate the negative impact of benefits, depending on the state.
Each state has the legal authority to set the type of experience rating methodology to apply in the formulation of employers’ tax rates. No matter the state in which an employer operates, fiscal year increases in benefit charges will almost always have a negative impact on SUI tax ratings. However, the same cannot be said for decreases in taxable payroll. In the 31 states that use a “reserve ratio” calculation methodology to determine SUI tax rates, sizable decreases in taxable payroll during the rate computation period will likely cause tax rates to decrease (all other factors being equal). In the 19 states that use a “benefit ratio” calculation methodology, sizable decreases in taxable payroll will likely cause tax rates to increase (all other factors being equal).
There historically has been a lag between when economic downturns impact SUI tax rates. This is because rating calculations take into consideration more than just a single year of experience. This can be demonstrated using our most recent recession, which lasted from December 2007 to June 2009.5 In the case of COVID-19, the lag period has been compressed.
Historical Average SUI Tax Rates3
As you can see from the above graphic, the average SUI tax rate in 2020 is below those experienced at the beginning of the Great Recession. The somewhat good news is that future increases in rates will be coming off an 18-year low (the average U.S. SUI tax rate in 2002 was 1.80%,3 not shown above).
Trust funds are used by state workforce agencies to pay benefits to claimants. The solvencies of these trust funds are assessed based on an index known as the Average High Cost Multiple (“AHCM”), a standard measure of trust fund solvency used by the U.S. Department of Labor. A multiple of 1.00 indicates a state trust fund is deemed sufficiently solvent and able to pay one year of benefits associated with an average recessionary period. As of January 1, 2021, 40 states were not considered adequately funded.5
Average High Cost Multiples as of January 1, 2021
The amount of unemployment benefits paid out in a relatively short period does not bode well for the system. This may require legislatures and state workforce agencies tasked with ensuring the sufficiency of trust funds to increase SUI tax rates in the near-term.
During Q1 2020, net state trust fund balances (i.e., net of Title XII advances, see more below) decreased by $5.13 billion (from $75.62 billion to $70.49 billion).6 It is customary during non-recessionary periods for state trust fund balances to decrease during Q1 of each year. However, the size of this decrease is what is concerning, especially considering the spike in initial unemployment claims did not begin until the week ended March 21, 2020. First quarter trust fund balances over the past three years (Q1 2017 to Q1 2019) decreased by an average of $2.72 billion.7
Typically we see a replenishment of trust funds in Q2 of each year. This is a direct result of Q1 tax contributions being paid in April. However, this is not the case in 2020. COVID-19 related claim volumes, and the fact that a number of states allowed employers to defer tax payments, caused net state trust fund balances to decrease by $39.50 billion (from $70.49 billion to $30.99 billion) from Q1 2020 to Q2 2020. Net state trust fund balances decreased by $38.47 billion (from positive $30.99 billion to negative $7.48 billion) from Q2 to Q3 2020 and decreased by $13.33 billion (from negative $7.48 to negative $20.81 billion) from Q3 to Q4 2020 and decreased by $10.01 billion (from negative $20.81 billion to negative $30.82 billion) from Q4 2020 to Q1 2021.6 & 7
The following graphic compares trust fund balances as of the beginning of 2020 to trust fund balances as of the end of each quarter, by state.
State Trust Fund Balances6
The depletion of state trust funds can have negative implications not only to future SUI tax rates but also the amount of wages subject to those tax rates. Employers pay SUI tax on wages earned and paid to each employee within a calendar year up to a specified amount, known as the annual taxable wage base. Some states correlate annual taxable wage base adjustments to state trust fund balances.8 Over the past 15 years, taxable wage bases have increased by an average of 2.4% annually. During the height of the Great Recession (from 2008 to 2009 and 2009 to 2010), the average annual increase was 4.8%. From 2020 to 2021, taxable wage bases increased by an average of 2.9%.
Average Annual Taxable Wage Bases
The governor of any state may request a loan under Title XII of the Social Security Act. This is typically done when a state’s reserves are inadequate to pay anticipated future unemployment benefits. If a state has an outstanding loan balance on January 1 of two consecutive years and has not repaid the balance by November 10 of that second year, employers in the state are at risk of losing a portion of their FUTA tax credit for that year. The FUTA tax credit starts at 5.40% and is reduced by 0.30% (known as the FUTA credit reduction) for each year the loan remains outstanding beyond the second year. The FUTA tax rate is a net 0.60% because of the FUTA tax credit [6.00% (gross FUTA tax rate) - 5.40% (FUTA tax credit) = 0.60%)].9
In the first year of the FUTA tax credit loss, the net FUTA tax rate increases from 0.60% to 0.90%. The net FUTA tax rate can increase further, in increments of 0.30% per year, if the loan remains outstanding in subsequent years.
As of May 17, 2021, the following states have received Title XII advances or have been granted authorization for future advances (like a line of credit).
Title XII Advance Activities Schedule6
* Federal Title XII advance existed prior to COVID-19 crisis and continues to be subject to FUTA credit reductions.
Employers in states that accept advances during calendar year 2020 should not be subject to FUTA credit reductions until 2022. The first January 1 will occur on January 1, 2021. The second January 1 will occur on January 1, 2022. Should a state’s Title XII advances remain outstanding on November 10, 2022, employers in the state will be subject to a 0.30% increase in the FUTA tax rate, from 0.60% to 0.90%, for the entire 2022 calendar year.
Families First Coronavirus Response Act
On March 18, 2020, Congress approved and the President signed into law the Families First Coronavirus Response Act (the “FFCRA”). Included in the FFCRA are a number of provisions aimed at stabilizing unemployment insurance. Five hundred million dollars is reserved for emergency grants to states with at least a 10% increase in claims. Those states would be eligible to receive a grant to assist with the payment of benefits related to COVID-19.
The FFCRA also provides full federal funding of extended unemployment benefits for a limited period. This is for states that experience an increase of 10% or more in unemployment claims over the previous year. Furthermore, this provides 100% federal funding for extended benefits through December 31, 2020. Ordinarily, states must fund 50% of such benefits. When a state has high prolonged unemployment, extended benefits are triggered. The FFCRA will provide up to an additional 26 weeks of unemployment benefits after regular benefits are exhausted; similar to those provided during the Great Recession. On average, regular benefits are paid for 26 weeks.
In addition, the FFCRA provides a waiver of interest, through December 31, 2020, on outstanding advances under Title XII of the Social Security Act. The waiver of interest was extended through March 14, 2021 by the Consolidated Appropriations Act, 2021, discussed further below.
U.S. Department of Labor Actions
On March 19, 2020, the U.S. Department of Labor issued Unemployment Insurance Program Letter ("UIPL") No. 11-20 addressing the Minimum Disaster Unemployment Assistance (“DUA”) Weekly Benefit Amount. To qualify for DUA, a claimant must not be eligible for regular unemployment insurance benefits. The administrative pronouncement mandates that “[i]f an individual's DUA weekly benefit amount is less than 50 percent of the state's average weekly payment of unemployment compensation (UC) or if the individual has insufficient wages from employment or insufficient or no net income from self-employment, the state shall determine the DUA weekly amount to equal 50 percent of the average weekly payment of UC in the state.” The minimum DUA weekly benefit amount is only to apply during the second quarter of 2020.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, Congress approved and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The unemployment insurance provisions include:
- An additional $600 per week payment up to four months (through July 25), above and beyond other unemployment benefits a claimant might receive;
- Extension of benefits to self-employed workers, independent contractors and those with limited work history;
- Temporary full funding of the first week of regular unemployment benefits for states with no waiting period (this provision provides incentive for states to suspend their first week waiting period); and
- Extension of unemployment benefits for an additional 13 weeks through December 31, 2020 after state unemployment benefits end (typically after 26 weeks).
The CARES Act also contains provisions for reimbursing employers (i.e., non-profits that elect to directly “reimburse” benefits versus paying tax). One provision relieves reimbursers of 50% of unemployment benefits through December 31, 2020. This non-charging of benefits relates to all benefits, not just those related to COVID-19 claims.
On August 8, 2020, the President issued an Executive Memorandum (Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019) authorizing a “Lost Wages Assistance” (LWA) program due to the expiration of the $600 supplement to state unemployment benefits under the CARES Act.
On August 12, 2020, the U.S. Department of Labor issued UIPL No. 27-20 (supplemented by Change 1 on August 17th) addressing the LWA program, which provides in part:
- LWA funding will come from FEMA (Federal Emergency Management Agency), up to $44 billion, via the agency’s Disaster Relief Fund.
- For those states that elect to participate in the LWA program, it will be administered by state workforce agencies (outside of state unemployment trust funds used to pay regular unemployment benefits), which must apply for a grant no later than September 10, 2020. Equifax has prepared a State Claims Resource Guide summarizing state participation in the LWA program.
- LWA provides for a maximum supplemental payment of $400 per week:
- $300 from “federal contributions” via the FEMA Disaster Relief Fund; and
- $100 from “state contributions” via state funding sources (including the CARES Act Coronavirus Relief Fund and general revenues, but excluding state unemployment trust funds). States may elect not to participate in the $100 supplemental benefit payment.
- Eligible claimants (those who provide self-certification that he or she is unemployed due to disruptions caused by COVID-19 and receives at least $100 in state unemployment benefits) can receive weekly LWA payments retroactive to the week of unemployment ending August 1, 2020 through weeks of unemployment ending no later than December 27, 2020.
- The LWA program may terminate earlier than December 27, 2020, if: 1) FEMA expends the $44 billion; or 2) The FEMA Disaster Relief Fund balance reaches a floor of $25 billion; or 3) Congress enacts a new economic stimulus package to include a similar unemployment benefit supplement.
On September 5, 2020, FEMA ended funding of the LWA program. States that were approved for funding received six weeks of funding and there have been no extensions made and the program sunset. Because the LWA program is federally funded through FEMA, or funded from sources other than state unemployment trust funds, there should not be a negative impact on employers’ unemployment accounts, including reimbursing employers, or future SUI tax rates.
On August 8, 2020, the President issued an Executive Memorandum (Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster) allowing employees who make less than $4,000 every two weeks to defer the withholding, deposit, and payment of their share of Social Security tax and federal income tax starting September 1 through the end of 2020. The IRS issued further guidance, Notice 2020-65, indicating that the deferred tax is to be repaid ratably from wages and compensation paid between January 1, 2021 and April 30, 2021. The Consolidated Appropriations Act, 2021, addressed further below, extends the deadline for employees to repay such deferred taxes until December 31, 2021.
On December 27, 2020, the President signed into law the Consolidated Appropriations Act, 2021. The unemployment insurance provisions include:
- Extension of Federal Pandemic Unemployment Compensation: The Federal Pandemic Unemployment Compensation (FPUC) supplement is restored to all state and federal unemployment benefits at $300 per week, starting after December 26 and ending March 14, 2021.
- Extension of Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations: The CARES Act provision, which amended the FFCRA to provide federal support to cover 50% of the costs of unemployment benefits for employees of state and local governments and non-profit organizations, is extended through March 14, 2021.
- Mixed Earner Unemployment Compensation: A federally funded $100 per week additional benefit will be provided to individuals who have at least $5,000 a year in self-employment income, but are disqualified from receiving Pandemic Unemployment Assistance (PUA) because they are eligible for regular state unemployment benefits. This mixed-earner supplemental benefit would be added to the FPUC and would terminate along with it on March 14, 2021. This provision would be effective for future unemployment benefit payments after a state chose to make an agreement with the Department of Labor.
- Extension and Benefit Phase-out Rule for Pandemic Emergency Unemployment Compensation: 1) Extends Pandemic Emergency Unemployment Compensation (PEUC) to March 14, 2021 and allows individuals receiving benefits as of March 14, 2021 to continue through April 5, 2021, as long as the individual has not reached the maximum number of weeks; 2) Increases the number of weeks of benefits an individual may claim through the PEUC program from 13 to 24; and 3) Provides rules for states about sequencing these benefits with other unemployment benefits.
- Extension and Benefit Phase-out Rule for Pandemic Unemployment Assistance: 1) Extends Pandemic Unemployment Assistance (PUA) to March 14, 2021 and allows individuals receiving benefits as of March 14, 2021 to continue through April 5, 2021, as long as the individual has not reached the maximum number of weeks; 2) Increases the number of weeks of benefits an individual may claim from 39 to 50; 3) Provides for appeals to be at the state level; 4) Provides states authority to waive overpayments made without fault on the part of the individual or when such repayment would violate equity and good conscience; 5) Provides a transition rule for certain individuals transitioning between PUA and the PEUC program; and 6) Limits payment of retroactive PUA benefits to weeks of unemployment after December 1, 2020.
- Requirement to Substantiate Employment or Self-Employment and Wages Earned or Paid to Confirm Eligibility for Pandemic Unemployment Assistance: 1) Effective January 31, 2021, requires new applicants for PUA to submit documentation to substantiate employment or self-employment within 21 days and provides for such deadline to be extended when an individual has shown good cause; and 2) Requires individuals receiving PUA as of January 31, 2021 to submit documentation to substantiate employment or self-employment within 90 days.
- Requirement for States to Verify Identity of Applicants for Pandemic Unemployment Assistance: 1) Requires states to have procedures in place to verify or validate the identity of PUA applicants, and for timely payment of benefits; and 2) Clarifies that expenses to implement such procedures qualify as an administrative cost and may be reimbursed as part of PUA operation.
- Return to Work Reporting for CARES Act Agreements: Effective 30 days after enactment, states are required to have methods in place to address situations when claimants of unemployment compensation refuse to return to work or refuse to accept an offer of suitable work without good cause including: 1) A reporting method for employers to notify the state when an individual refuses employment; and 2) A plain language notice to claimants about state return to work laws, rights to refuse to return to work or to refuse suitable work and information on contesting a denial of a claim, as well as what constitutes suitable work, including a claimant’s right to refuse work that poses a risk to the claimant’s health and safety.
- Extension of Temporary Financing of Short-Time Compensation Payments in States with Programs in Law: Extends through March 14, 2021 the CARES Act provision which provided temporary 100% federal financing for Short-Time Compensation (“work-sharing”) programs which are established in state law.
- Extension of Temporary Financing of Short-Time Compensation Agreements for States Without Programs in Law: Extends through March 14, 2021 the CARES Act provision which provided a 50% subsidy to non-statutory, temporary state Short-Time Compensation programs.
- Extension of Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week: Extends through March 14, 2021 the CARES Act provision which reimbursed states for the cost of waiving the “waiting week” for regular unemployment compensation. The reimbursement percentage for weeks ending after December 26, 2020 is set at 50%.
On March 11, 2021, the President signed into law the American Rescue Plan Act of 2021. The federal unemployment benefit programs, initially implemented under the CARES Act and later reauthorized via the Consolidated Appropriations Act, 2021, were set to expire March 14, 2021. Under the Act, these federal benefit programs are now extended until the week ending September 4, 2021, outlined as follows:
- Federal Pandemic Unemployment Compensation (FPUC) – A federally funded supplement of $300 weekly will continue to be added to state and federal unemployment benefits.
- Pandemic Emergency Unemployment Compensation (PEUC) – These additional weeks of federally funded benefits will continue to be provided to eligible individuals who exhaust their traditional state unemployment insurance (UI) benefits.
- Pandemic Unemployment Assistance (PUA) – These federally funded benefits will continue to be provided to individuals who do not qualify for regular state unemployment, such as the self-employed, part-timers, and gig workers.
Additional unemployment-related provisions of the American Rescue Plan Act of 2021 include:
- An extension of the waiver of interest on outstanding advances under Title XII of the Social Security Act through September 6, 2021. The FFCRA provided a waiver through December 31, 2020, which was then extended through March 14, 2021 by the Consolidated Appropriations Act, 2021.
- An income tax exclusion of $10,200 for unemployment benefit income in the 2020 tax year for households with adjusted gross incomes under $150,000.
- An extension of the 100% federal reimbursement of regular state extended unemployment benefits.
- An extension of federal funding for the first week of regular unemployment benefits.
- An extension of temporary financing of short-time (a/k/a work share programs) benefit payments.
- An increase in the federal reimbursement amount, from 50% of charges to 75% of charges, to reimbursing employers for weeks beginning after March 31, 2021, and ending on or before September 6, 2021.
**NEW** On May 11, 2021, the Department of Treasury issued an Interim Final Rule to implement the Coronavirus State and Local Fiscal Recovery Funds established under the American Rescue Plan Act of 2021. Recipients of funds may make deposits into state trust funds up to the level needed to restore to pre-pandemic levels (as of January 27, 2020), or to pay back advances received under Title XII for the payment of benefits between January 27, 2020 and date the Interim Final Rule becomes effective.
Since the level of state trust funds is a primary driver in determining SUI tax rates, the use of funds to replenish depleted trust funds has positive implications for employers. This of course is dependent on how the states decide to use the funds available to them. Should a state decide to improve the solvency of its trust fund, and do so prior to the rate computation date (often June 30), this could mitigate the anticipated increases in SUI tax rates for 2022 and future years.
In addition, if a state uses the funds to repay Title XII advances prior to January 1, 2022, this could help avoid FUTA credit reductions for the 2022 calendar year. Also, as the current waiver of interest on Title XII advances ends on September 6, 2021, the elimination of some or all of the Title XII advances could help avoid the payment of interest and surcharges to employers.
Most states have taken actions in response to the COVID-19 crisis. Some of these actions relate to benefit eligibility and some to SUI tax rates.
Non-Charging of Benefits
The most meaningful of these actions to date is the “non-charging of benefits.” So far, the following states have some type of non-charging of benefit provision, with other states still considering similar actions:
States with Non-Charging of Benefit Provisions
The benefits not charged to specific employers will be “socialized” and come out of state trust funds. Any sizable depletion of funds will likely have a negative impact on all employer tax rates in a state; not just those with significant reductions in workforce. It is more important than ever for employers to audit benefit charge statements to help ensure that benefits that should not be charged, are not charged. Equifax has prepared a State Claims Resource Guide summarizing certain COVID-19 related claims information, including states with “non-charging of benefit” provisions.
Other State Actions
Other examples of state actions taken in response to the COVID-19 pandemic, for those states that have yet to issue their tax rates, include:
- Mississippi passed SB 3051 providing:
- The general experience rate for 2021 will be 0% so that charges for the period March 8, 2020 through June 30, 2020 will not impact the employer's individual experience rating calculations for 2021 and the two subsequent tax rate years;
- Charges attributed to each employer's individual experience rate for the period July 1, 2020 through December 31, 2020 will not impact the employer's individual experience rate calculations for purposes of calculating the total unemployment insurance rate for 2022 and the two subsequent tax rate years; and
- Contribution collections for the state workforce investment, Mississippi works and Mississippi workforce enhancement training funds shall not be suspended for tax rate year 2021, and the resulting contribution rate of .20% shall be added to the employer's general and individual experience rate to obtain the total unemployment insurance rate for 2021.
- Massachusetts passed Senate Bill 90 which freezes a statute-mandated increase in the unemployment tax schedule through calendar year 2022 (i.e., rate schedule "E" will remain in effect). However, the bill also adds a surcharge to 2021 and 2022 rates to cover anticipated interest payments on federal advances issued to Massachusetts to cover unemployment obligation shortfalls. Although not part of the bill, it is also worth noting that employers will also be subject to a "uniform solvency assessment" at a rate of 9.23% for 2021, versus 0.58% in 2020. This assessment covers the cost of benefit charges that are not the responsibility of individual employers and is statutorily computed each year. In addition, the Massachusetts Department of Unemployment Assistance notified employers that the deadline to pay employer contributions had been pushed back to June 1, 2021. Employers still have to file their employment and wage details by April 30, 2021.
- Texas has issued a letter to employers stating that 2021 tax rates will be issued late in June 2021 (which is now more likely to be July). This will allow Texas time to consider legislation assisting Texas employers and for the Governor to sign that legislation.
- Voluntary contributions are not in effect this year. Governor Abbott has suspended Section 204.048 of the Texas Labor Code, which sets deadlines for employers who make voluntary contributions into the UI tax system.
- Employers can select and enter a tax rate if their payroll software system requires that one be entered. Once the rate notice is received employers will be able to update their system to the correct tax rate. Employers have the discretion to wait and receive their 2021 tax rate notification, thus ensuring an accurate calculation of the state unemployment tax liability, or select an estimated rate until the actual 2021 rates are provided.
- The Unemployment Tax Wage Reporting and Payment Schedule has changed as follows:
- The Florida Department of Revenue (DOR) has revised the 2021 unemployment tax rates for employers following the enactment of legislation (Senate Bill 50) that adds a specified source of revenue for the state's unemployment trust fund. The bill aims to use out-of-state online retail sales tax to replenish to unemployment trust fund. The legislation also requires that for certain tax years, unemployment tax rates will be calculated without applying a trust fund positive adjustment factor. Typically, if the balance in the unemployment trust fund is below 4% of the previous year's taxable payroll, a positive adjustment factor is computed each year until the fund balance equals or exceeds 4% of the previous year's taxable payroll. A positive adjustment factor will increase tax rates. By not applying the positive adjustment factor, the increase in unemployment tax rates will not take place. The legislation provides that the positive adjustment factor will not apply to the 2021 tax year. As such, the minimum unemployment tax rate for 2021 is retroactively reduced from 0.29% to 0.10%. The bill also excludes unemployment benefit charges for the second quarter of 2020 from unemployment tax rate calculations for 2021. Employers that paid unemployment tax at a higher rate for the first quarter of 2021 will be refunded the additional amount. In addition, Florida issued Executive Order 21-80 that delays the due date for payment of employer unemployment contributions for the first quarter of 2021 until May 31, 2021. The order does not delay the due date of April 30, 2021 for the first quarter 2021 unemployment quarterly report (Form RT-6).
- Hawaii passed House Bill 1278 that rolls back the 2021 unemployment tax rate increases for employers. Previously, the Hawaii Unemployment Insurance Division announced that for 2021, unemployment tax rates would be determined under Schedule H (2.4% to 6.6%) in 2021, an increase from 2020. New legislation, retroactively effective January 1, 2021, rolls back the increase and calls for unemployment tax rate schedule D (0.2% to 5.8%) to apply for 2021 and 2022. Further, the legislation requires the Director of Labor and Industrial Relations to omit benefits charged for experience ratings for employers due to COVID-19 in calendar years 2021 and 2022. During Hawaii Governor David Ige's recent 2021 State of the State Address it was announced that the state plans to cover the interest on the $700 million federal unemployment loan on behalf of employers. According to Ige, that amounts to more than $165 million that employers would otherwise have to pay over the next six years (this amount may be mitigated or eliminated by the waiver of interest pursuant to the American Rescue Plan Act of 2021).
- New Jersey passed bill A-4853/S-301 which aims to assist employers affected by the COVID-19 pandemic. Specifically, the bill will assign the following unemployment tax rate tables through fiscal year 2024:
- Table C (rates range from 0.5% to 5.8%) for fiscal year 2022 (from July 1, 2021 through June 30, 2022);
- Table D (rates range from 0.6% to 6.4%) for fiscal year 2023 (from July 1, 2022 through June 30, 2023), unless calculations call for a lesser table to be in effect; and
- Table E (rates range from 1.2% to 7.0%) for fiscal year 2024 (from July 1, 2023 through June 30, 2024), unless calculations call for a lesser table to be in effect.
- New York State Department of Labor (NYSDOL) Commissioner Roberta Reardon issued Executive Order 202.45. Per this EO, all unemployment benefits for both merit rated and reimbursing employers will not be charged to employers for the period beginning March 9, 2020 and continuing through expiration of the state disaster emergency declared by EO 202 or when the emergency flexibility granted by the FFCRA expires, whichever occurs first.
- As it relates to merit rated employers, the NYSDOL is currently working on programming to remove these charges so to as to not negatively impact 2021 tax rates. At this time, they still expect to issue 2021 tax rates in a timely manner in March 2021. When issued, the rate calculation will not include charges that have been removed per the Commissioner's EO.
- For reimbursing employers, the NYSDOL is currently working to issue Q4 2020 charge statements. As this EO was issued subsequent to the payment deadlines for Q1, Q2, and Q3 2020, they are determining the amounts that will be reflected on the Q4 detail and billing documents.
- Pursuant to the CARES Act, reimbursing employers nationally were relieved of 50% of charges incurred. Commissioner Reardon’s EO provides relief for the remaining 50% resulting in a net chargeable amount of zero for these employers. As stated above, many reimbursers in New York have likely already remitted timely payments for past quarters. The NYSDOL is currently determining how this overpayment will be handled. Options being considered include leaving any credit balance intact to offset future UI charges, or requesting a refund.
- In addition, under legislation recently signed by Governor Cuomo, employers will not be charged for any unemployment benefit claims tied to the COVID-19 pandemic (L. 2021, S1197).
- Colorado has issued notifications to employers that have made voluntary contributions that their payments are being returned due to potential rate adjustments due to COVID-19 related benefits that may have been improperly charged to employers’ accounts. Updated SUI tax rates notices are anticipated to be issued in March of 2021. Voluntary contribution payments will be accepted once the rates have been reissued and are postmarked by April, 15, 2021.
- Washington state enacted a number of provisions (L. 2021, S5061) designed to provide unemployment insurance tax relief to employers:
- Unemployment benefits paid for the one-week waiting period will not be charged against an employer's experience rating account or to certain reimbursable employers. If the waiting period is partially paid or partially reimbursed, the Washington Employment Security Department (ESD) may elect not to charge the benefits paid by promulgating a rule to that effect.
- Benefits paid for all weeks starting with the week ending March 28, 2020 through May 30, 2020 are not to be charged to the experience rating account of any contribution paying employer. Additionally, a contributory employer may request that benefits paid not be charged when the claims are due to closure or severe curtailment of operation at the employer's business and the closure due to a public health emergency.
- Sets the maximum social tax as follows: (1) 0.50% for 2021; (2) 0.75% for 2022; (3) 0.80% for 2023; (4) 0.85% for 2024; and (5) 0.90% for 2025.
- Suspends the solvency surcharge for 2021 to 2025.
- From February 8, 2021 until May 31, 2026, the 10% Voluntary Contribution Program (VCP) surcharge is not charged and the VCP payment deadline is extended to March 31. The minimum amount of a voluntary contribution must result in a recomputed benefit ratio at least two rate classes lower than the original rate class; and only employers who have moved up at least eight rate classes may use the program.
- North Carolina enacted Senate Bill 114 (S.L. 2021-5), reducing the employer base contribution rate to the Unemployment Insurance Trust Fund for 2021 from 2.4% to 1.9%. The base contribution rate is one of the factors used to calculate an employer’s unemployment insurance tax rate for the year. This may result in an unemployment insurance tax rate reduction of up to 0.5% for active, experience-rated employers.
- Employers who are affected by this change will receive a Revised 2021 Tax Rate Notice by mail.
- Employers whose tax rate for 2021 is already at the minimum rate allowed by law (0.06%) will not be affected by this change.
- Employers whose tax rate for 2021 is already at the maximum rate allowed by law (5.76%) may or may not receive a rate reduction, depending on individual recalculation results.
- Employers who have the standard new employer rate of 1.00% are not affected by this change, as they are not yet experience rated.
- Kentucky enacted L. 2021, H413, which locks the taxable unemployment wage base at the level of 2020 for tax years 2021 and 2022 (revised from $11,100 to $10,800 for 2021), and sets the employer contribution rate table to Schedule A of Table A for those two years as well. Additionally, the new law bars the charging of benefits paid due to a state of emergency or disaster declaration from the reserve account of the employer of the beneficiary and eliminates surcharge assessments for calendar years 2021 and 2022.
- **NEW** New Mexico issued the following notice to employers: “The Unemployment Insurance tax rate notice you received in November 2020 from the Department of Workforce Solutions reflected an increase to your rate. This notice is to inform you that the department will be conducting a rate review on your behalf as the increase differs from prior year rates you have received. Your current quarterly payment due date has been extended to May 30, 2021 to allow time for the completion of your rate review. Upon completion of the review you will receive a revised tax rate notice. If a discrepancy is found on your tax rate and you have already sent in payment, the department will credit your account accordingly.”
The COVID-19 crisis has lasted over a year and has been severe and unprecedented. States are continuing to take actions to mitigate some of the financial hardship expected on employers in 2021 and beyond.
Some of the provisions enacted to date make it easier for claimants to obtain benefits while other provisions attempt to mitigate some of the financial hardship expected on employers, including retroactive revisions to 2021 rating calculations. The impact of the COVID-19 pandemic has been felt in 2021 and is certain to impact employers for years to come.
To keep up-to-date, please visit our COVID-19 Resources website which will be updated as new information becomes available. Our COVID-19 Resources site includes a Tax Guide intended to assist employers in identifying potential risks associated with increases in SUI tax costs from 2020 to 2021. The Tax Guide also lists those states that have already issued 2021 SUI tax rates, which is most of them. Keep in mind, although most states have issued 2021 rates, there are potential rate revisions coming as a result of legislative action taken subsequent to the issuance of rates.
Please reach out to your Equifax unemployment representative to help address potential SUI tax rate impacts from COVID-19. Not a current client? Please feel free to contact our Employment Tax Consulting Group with any questions.
Disclaimer: The information provided herein is subject to change. It is intended as general guidance and not intended to convey specific tax or legal advice. Before taking any actions, employers should consult with internal and/or external counsel.
1 Per U.S. Department of Labor Unemployment Insurance Weekly Claims News Releases issued from March 26, 2020 to April 8, 2021. The amount reported for the week ended April 3rd represents the advance figures for seasonally adjusted initial claims. 2 Per U.S. Department of Labor, Office of Unemployment Insurance Weekly Claims Data. 3 Per Average Employer Contribution Rates by State issued by the U.S. Department of Labor. 4 Recessionary period according to the Federal Reserve. 5 Per 2020 SUI Trust Fund Solvency Report issued by the U.S. Department of Labor, Office of Unemployment Insurance, Division of Fiscal and Actuarial Services (February 2020). 6 Per data obtained from the TreasuryDirect site (a service offered by the U.S. Department of the Treasury Bureau of the Fiscal Service). 7 Per respective Unemployment Insurance Data Summary reports published by the U.S. Department of Labor. 8 Per Comparison of State Unemployment Insurance Laws 2019 issued by the U.S. Department of Labor, Employment and Training Administration. 9 Per IRC Section 3302 and related U.S. Treasury Regulations.