By Tom Towson
As state workforce agencies emerge from the financial stress caused by the COVID-19 pandemic, it is prudent for employers to monitor how this stress might impact their federal (FUTA) state unemployment insurance (SUI) tax rates. This regularly updated resource is intended to help provide employers insights into the condition of the unemployment insurance financing system and the potential impact to rates in 2025 and beyond.
Before addressing the condition of the SUI financing system, 2024 tax rates under the Federal Unemployment Tax Act (FUTA) are top of mind for employers as well.
The U.S. Department of Labor issued its analysis of potential FUTA credit reductions for 2024. California, Connecticut, New York and the Virgin Islands had outstanding Title XII advances on January 1 for at least two consecutive years. As such, these jurisdictions are potentially subject to a FUTA credit reduction for 2024. The net FUTA tax rates for 2024 will potentially increase from the standard net rate of 0.60% to 1.50% for California, Connecticut, and New York and to 4.80% for the Virgin Islands.¹
Advances to State Unemployment Trust Funds² (Title XII of the Social Security Act)
The Average High Cost Multiple (AHCM) is a standard measure of the solvency of the SUI financing system using a primary factor, a state’s trust fund balance at a point in time. State trust funds are used to pay unemployment benefits. An AHCM 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, 2024, 34 states were not considered adequately funded under this measure, compared to 37 as of January 1, 2023.³
Average High Cost Multiple (AHCM) (as of January 1, 2024)
A logical starting point for addressing the outlook for 2025 SUI tax rates is state unemployment trust fund balances; a primary factor in developing SUI tax rates. As depicted in the following graph, net trust fund balances (trust fund balance net of federal Title XII advances) were negative $39.46 billion at the end of Q1 2011, as a result of the Great Recession, compared to negative $27.12 billion at the end of Q1 2021, as a result of the COVID-19 pandemic (i.e., $12.34 billion more solvent). By the end of Q1 2022, net trust fund balances rebounded and were positive for the first time since the COVID-19 pandemic. By the end of Q2 2024, net trust fund balances were positive $46.13 billion.⁴ There is still a long way to go before trust funds are at levels experienced just prior to the COVID-19 pandemic but have reached levels experienced just prior to the Great Recession.
Historical Net Trust Fund Balances⁴ (Q1 2007 to Q2 2024)
Net trust fund balances were substantially higher pre-COVID than they were pre-Great Recession. Because of this and other factors (e.g., the COVID pandemic did not last as long as the Great Recession), net trust fund balances did not reach the negative levels experienced during the Great Recession.
The following graph illustrates net trust fund balances by state as of June 30, 2024.⁴
Net Trust Fund Balances by State (descending order by state)
As state trust funds are depleted during a period of high or increased levels of unemployment, SUI tax rates have historically increased as well. However, the correlation is not immediate. There is typically a lag between when an economic downturn impacts SUI tax rates. This is because rating calculations typically take into consideration more than just a single year of experience and look back to historical experience in the development of rates. And since rates are issued annually, a full year can pass before rates are next adjusted.
As illustrated in the below graph, as net trust fund balances began to decline in 2009 as a result of the Great Recession, the average SUI tax rate in the U.S. did not hit its peak until 2012. After that peak, average rates declined for eight consecutive years through 2020. After 2020, average SUI tax rates in the U.S. fluctuated slightly:
Correlation of Historical Average SUI Tax Rates to Net Trust Fund Balances4 (Q4 1998 to Q2 2024)
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.
The following table provides historical taxable wage base trends.⁵
Annual SUI Taxable Wage Bases
The following contains examples of actions taken by states that could impact SUI tax rates in 2025 and beyond. These state summaries are for informational purposes only. Please see the state legislation and related materials for specific guidance.
Colorado SB 20-207 The legislation incrementally increases Colorado's unemployment taxable wage base to $30,600 by calendar year 2026. The wage base increased to $20,400 in 2023 (from $17,000 in 2022), $23,800 in 2024, $27,200 in 2025, and $30,600 in 2026. Each year thereafter, the wage base will be adjusted by the change in average weekly earnings.
Florida SB 50 The legislation changes how Florida’s UI tax rate is computed for rates effective 2022 through 2025.
Tax rates effective January 1, 2023 through December 31, 2025, will exclude charges from the second, third and fourth quarters of 2020 and all benefit charges paid as a direct result of a government order to close or reduce capacity of a business due to COVID-19, as determined by the Department of Economic Opportunity. The tax rate calculation will also exclude the application of the positive adjustment factor (trust fund trigger). Lastly, benefit charges from the first and second quarters of 2021 may be decreased if the Office of Economic and Demographic Research (EDR) estimates total tax collection for rate year 2022 will exceed $475.5 million. These changes to the tax rate calculation are repealed if the trust fund reaches $4,071,519,600 on June 1. On June 1, 2024, the trust fund was $4,462,719,250, per TreasuryDirect.
The new legislation required the state to make three deposits during 2021 to the UI trust fund. The funding comes from online sales tax collected from out-of-state e-commerce companies. In addition, beginning July 2022, and on or before the 25th day of each of the following months, the Florida Department of Revenue will distribute $90 million monthly to the state's UI trust fund. The Department is required to end monthly distributions when the Department of Revenue receives certification from EDR that the ending balance of the UI trust fund exceeds $4,071,519,600 or on December 31, 2025, whichever is earlier.
Georgia SB 160 The bill reinstates the 0.06% administrative assessment which will be in effect for all experience rated employers. This assessment applies to the time frame of January 1, 2024 through December 31, 2026. It is set to expire as of January 1, 2027. The administrative assessment does not apply to reimbursing employers and those assigned a minimum or maximum rate. The new employer rate has been reduced to 2.64% to account for the assessment, resulting in a total rate of 2.70% for experience based employers. The total new employer rate for non-profit employers will be 2.64%.
Hawaii HB 2471 Hawaii’s Employment Security Law, as it relates to the adequate reserve fund, has been amended. Effective for the calendar years 2023 through 2030, "adequate reserve fund" means an amount that is equal to the amount derived by multiplying the benefit cost rate that is the highest during the 10-year period ending on November 30 of each year by the total remuneration paid by all employers, with respect to all employment for which contributions are payable during the last four calendar quarters ending on June 30 of the same year, as reported on contribution reports filed on or before October 31 of the same year, but does not include the benefit cost rate from June 2020 through August 2021.
Indiana HB 1111 The law creates a new tax rate Schedule C (former Schedule E) which is to remain in effect through 2025. The rates range from 0.50% to 7.40%.
Iowa Announcement Relating to 2025 Wage Base Effective January 1, 2025, employers will pay unemployment taxes on the first $39,500 paid to each employee, up from $38,200 in 2024.
Kansas HB 2570
The law, in relation to unemployment taxes, provides for the following:
Nebraska LB 1393 Legislative Bill 1393 adds to the calculation of the state's reserve ratio to determine the yield factor used in figuring out an employer's unemployment tax rate. Also, beginning January 1, 2025, the final average combined unemployment tax rate will be reduced by 5% through December 31, 2029. The yield rate is divided by certain taxable wages to create the average combined tax rate.
Nevada Announcement Relating to 2025 Wage Base Effective January 1, 2025, employers will pay unemployment taxes on the first $41,800 paid to each employee, up from $40,600 in 2024.
New Jersey (fiscal year jurisdiction) Announcement Relating to 2024/2025 Unemployment Tax Rates and Wage Base The New Jersey Department of Labor and Workforce Development announced that unemployment tax rates will be determined under Table D for the 2025 fiscal year that runs from July 1, 2024 to June 30, 2025 (higher Table E was in effect for the prior fiscal year). The unemployment tax rates in Table D range from 0.60% to 5.40% for positive reserve ratio employers; and from 5.60% to 6.40% for deficit reverse ratio employers. The new employer rate under Table D is 3.1%.
Effective January 1, 2025, employers will pay unemployment taxes on the first $43,300 paid to each employee, up from $42,300 in 2024.
New York Announcement Relating to Future Wage Bases New York has announced that future unemployment taxable wage bases are to increase as follows: (1) $12,500 in 2024; (2) $12,800 in 2025; and (3) $13,000 in 2026. After 2026, the wage base is permanently adjusted on January 1 of each year to 16% of the state average annual wage, rounded up to the nearest $100. The state average annual wage is established no later than May 31 of each year. The average annual wage cannot be reduced from the prior-year level.
New York Announcement Relating to Interest Assessment Surcharge In June of 2024, businesses across the state received Interest Assessment Surcharge (IAS) bills. IAS bill payments go toward paying down the interest on the state’s federal Title XII advances used to pay benefits to unemployed workers during the pandemic. The New York State Department of Labor is required by law to collect this payment annually from employers who make unemployment insurance contributions until the state’s debt is paid.
The IAS rate is based on the amount of federal interest due on September 30. The current year rate (2024) is .12%, a reduction from last year’s rate (2023) of .18%. The IAS for employers is calculated using the wages subject to contributions for the current payroll year (e.g., the fourth quarter of 2022 through the third quarter of 2023) and multiplying those wages by the IAS rate of .12%.
Tennessee (fiscal year jurisdiction) Announcement Relating to 2024/2025 Unemployment Tax Rates and Wage Bases Effective July 1, 2024 through December 31, 2024, Premium Rate Table 6 remains in effect. Employer rates range from 0.01% to 2.3% for positive-balance employers and from 5.0% to 10.0% for negative-balance employers.
By February 1 of each year, the Department must report to the state legislature the UI trust fund balance as of the prior December 31, for purposes of determining the SUI taxable wage base for the calendar year. If the UI trust fund balance on December 31 of any year is less than $900 million, the taxable wage base is $9,000. If the trust fund balance is above $900 million, but less than $1 billion on December 31, the taxable wage base is $8,000. If the trust fund balance exceeds $1 billion on December 31, the taxable wage base is $7,000.
Vermont (fiscal year jurisdiction) Announcement Relating to 2024/2025 Unemployment Tax Rates Effective July 1, 2024 to June 30, 2025, the Vermont contribution rate schedule for employers remains Schedule 1. Rates under Schedule 1 range from 0.4% for Rate Class 0 to 5.4% for Rate Class 20. New employers pay 1.0% for this period, while new out-of-state employers in certain industries pay as follows: 2.2% for employers involved in the construction of buildings; 3.9% for employers involved in heavy and civil engineering construction; and 2.8% for specialty trade contractors.
Virgin Islands Bill No. 33-0090 The bill (amending Title 24, chapter 12, sections 302 and 308 of the Virgin Islands Code) replaces the reserve ratio experience rating methodology with a payroll variation methodology to determine employer unemployment Insurance tax rates beginning January 1, 2024. With the new methodology, employers’ tax rates will be based on changes in payroll for the preceding twelve quarters. As an employer's payroll increases, the tax rate would be lowered, and the converse for employers that have decreasing payrolls.
Washington Announcement Relating to 2025 Wage Base Effective January 1, 2025, employers will pay unemployment taxes on the first $72,800 paid to each employee, up from $68,500 in 2024.
Washington State SB 5061 The legislation has a number of provisions designed to provide unemployment tax relief to employers. The legislation 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 and 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.
Washington State HB 1901 The expanded access for employers to Washington State's voluntary unemployment insurance (UI) contributions was permanently extended. Voluntary UI contributions allow an employer to reduce its experience rating by reimbursing the UI trust fund for unemployment benefits paid to its former employees. An employer must meet certain criteria to participate in the program. In 2021, the state temporarily expanded access to the program by enacting temporary changes (see SB 5061 above). These changes were set to expire on May 31, 2026. House Bill 1901 makes the temporary expanded access to the program permanent. The now permanent changes include the March 31 submission date for the program (previously, February 15), increasing at least eight rate classes from the previous year (previously, 12 rate classes), and payments resulting in a reduction of two rate classes (previously, four rate classes). In addition, no surcharge will be applied to any voluntary payments (previously, there was a 10% surcharge).
Wisconsin Announcement Relating to 2025 Unemployment Tax Rates and Wage Base The state of Wisconsin has finalized their 2025 rate schedule. The state will once again be on Schedule D for the 2025 rate year. Rates will range from 0.00% to 12.00%. The wage base will remain unchanged at $14,000.
Wyoming Announcement Relating to 2025 Wage Base Effective January 1, 2025, employers will pay unemployment taxes on the first $32,400 paid to each employee, up from $30,900 in 2024.
The COVID-19 pandemic caused a depletion of state unemployment trust funds used to pay unemployment benefits, prompting many states to take action to mitigate potential increases in tax rates. After eight years of declining average SUI tax rates, average rates increased by 9.9% in 2021, then decreased by 7.9% in 2022, then decreased another 4.6% in 2023. It is anticipated that average SUI tax rates will remain relatively flat in 2024 (U.S. DOL information has not been issued) and in 2025. While it is prudent for employers to be aware of the direction of SUI tax rates using indicators like state unemployment trust fund balance trends, state legislative initiatives, and overall economic conditions (all considered to be “uncontrollable factors”), it continues to be important for employers to take their own actions (“controllable factors”) to help keep SUI tax rates and associated costs as low as possible by:
Even after rates have been calculated and assigned, there are actions that employers can take to help reduce 2025 SUI tax rates. Visit the Equifax blog titled: Planning Strategies to Help Reduce SUI Tax Burdens in 2023 and Beyond for additional insights.
To keep up-to-date, please visit our Employer Unemployment Insurance Resource Center (log-in required). The site includes a 2025 Tax Guide intended to assist employers in identifying potential risks associated with increases in SUI tax costs from 2024 to 2025 (e.g., changes in minimum and maximum SUI tax rates, changes in wage bases, etc.).
Please reach out to your Equifax representative to help address potential risks associated with the current unemployment landscape. Not a current client? Please feel free to contact our Employment Tax Consulting Group with any questions.
____________________________________________________________________ Footnotes:
1. Per the FUTA Credit Reduction site published by the United States Department of Labor (“DOL”) Employment & Training Administration. 2. Per data obtained from FiscalData (an official website jointly created by the U.S. Department of the Treasury and the Bureau of the Fiscal Service). 3. Per U.S. DOL, SUI Trust Fund Solvency Report for 2024 (issued March 2024). The Average High Cost Multiple (AHCM) is measured as the Reserve Ratio (Trust Fund as a % of Total Wages) at the end of the calendar year immediately preceding the report year, divided by the Average High Cost Rate. The Average High Cost Rate is the average of the three highest calendar year benefit cost rates in the last 20 years (or a period including three recessions, if longer). 4. Per respective Unemployment Insurance Data Summary reports published by the U.S. Department of Labor and data obtained from FiscalData, TreasuryDirect (an official website of the U.S. Department of Treasury), and Average Employer Contribution Rates by State. 5. Information obtained from sources considered to be reliable (e.g., state legislative changes, state workforce agency announcements, state surveys, etc.). 6. Per Average Employer Contribution Rates by State issued by the U.S. Department of Labor. Net Trust Fund Balances per respective Unemployment Insurance Data Summary reports published by the U.S. Department of Labor and FiscalData and TreasuryDirect.
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