How Severely will COVID-19 Impact SUI Tax Rates?

Last updated: January 4, 2021

Unemployment claims filed during this record surge are expected to have a negative impact on future SUI tax rates.

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
• Summary

The COVID-19 pandemic has created an unprecedented surge in initial state unemployment insurance (“SUI”) claims. During the 41 weeks ended December 26, 2020, there were over 73 million initial unemployment claims filed.¹  The COVID-19 virus continues to impact the number of initial claims and continued unemployment.  The past 41 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.

Impact on 2020 SUI Tax Rates

Average U.S. SUI tax rates declined over the past eight years (from 3.48% in 2012 to 1.78% in 2020³). Any increase in unemployment claims associated with COVID-19 should not have an impact on already established 2020 calendar year rates.

No matter the severity of the COVID-19 pandemic, employers should not experience higher SUI tax costs until January of 2021.

However, there could be an impact on rates in those states that provide for rate changes mid-year or use a fiscal year to determine SUI tax rates.

Impact of Computation Dates on SUI Tax 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 could materially impact calendar year 2021 rates.

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.

SUI Tax Rating Methodologies

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 any future increase 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).

Solvency of the SUI System

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.  Despite improving trust fund balances, 22 states were still not considered adequately funded as of January 1, 2020.⁵

Average High Cost Multiples as of January 1, 2020

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 2021. The states have limited time to observe the severity of the crisis before implementing any such increase to 2021 rating calculations.

State Trust Fund Balances

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 $13.18 billion (from negative $7.48 to negative $20.66 billion) from Q3 to Q4 2020.⁶

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%.

Average Annual Taxable Wage Bases

Federal Title XII Advances

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 December 30, 2020, 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 Schedule⁷

* 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.

Federal Legislative Actions

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.

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).

Any additional or supplemented federally funded unemployment benefits should not have an impact on employers’ SUI tax accounts or SUI tax rates.

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 17^th) 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.

As of September 5, 2020, FEMA has 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.

Deferral of Employment Tax Payments

In addition, the CARES Act expands payroll tax relief to Social Security tax payments; employers of any size may defer the payment of their share of 2020 Social Security tax payments. Fifty percent (50%) of the payments that would have been required between the date of enactment of the CARES Act and December 31, 2020 can be deferred until December 31, 2021.  Employers can defer the remaining 50% until December 31, 2022.

There is no “election” required, employers just need to “short pay” the deposit amount. The IRS has released a final draft of Form 941, Employer’s Quarterly Federal Tax Return, to accommodate the deferrals. 

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 memorandum also directs the Secretary of the Treasury to explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred.

On December 27, 2020, the President signed into law the Omnibus Federal Spending and Economic Stimulus Bill.  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%.

State Legislative Actions

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:

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:

• Indiana passed HB 1111 providing a new tax rate schedule (Schedule C) that is to remain in effect through 2025.

• 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.

• Kansas enacted HB 2016 providing that for calendar year 2021, unemployment contribution rates for employers will be limited to the standard rate schedule and prohibits an additional solvency adjustment.  Experienced employer rates will again range from 0% to 7.10% for 2021.

• Louisiana enacted SCR 9 that repeals the unemployment trust fund solvency surcharge for 2021. The act indicates that the impact of the imposition of the solvency tax at this time on many employers already suffering from dramatically reduced revenues could negatively affect their ability to hire back or to retain employees and stay in business.

• Maryland released its updated unemployment tax rates for tax year 2021, which will be based on Table F due to the impact of the coronavirus (COVID-19) pandemic on the state’s unemployment trust fund. The new table uses higher rates than Table A, which was in effect for tax year 2020. Experienced employer rates range from 2.2% to 13.5% in 2021, up from a range of 0.3% to 7.5% in 2020, however, benefit ratios by which these rates are assigned will be determined without consideration of benefits paid during fiscal year 2020 due to COVID-19 pursuant to Executive Order 20-12-10-01 issued by Governor Hogan on December 10. Instead, 2021 employer tax rates will be determined using benefits charged between July 1, 2016 and June 30, 2019.

• Minnesota Emergency Executive Order 20-102 acts to extend the deadline by which the Department of Employment and Economic Development (DEED) must release the computation of employers’ experience ratings for the 2021 tax year. This deadline, along with the deadline for notification of the rates to employers, has been extended until January 30, 2021. The extension is in response to uncertainty that all taxpaying employers have submitted full payroll records for the first six months of 2020 and concerns that DEED has not yet reviewed all the benefits paid in 2020 to determine if they should be used in the calculation of 2021 employer experience ratings.

• Massachusetts has announced that it will not be issuing unemployment tax rate notices to employers until early 2021, due to pending legislation introduced by the Governor. The Department of Unemployment Assistance (DUA) will communicate the new tax rates as soon as the pending legislation has been reviewed in the legislature. The legislation aims to provide unemployment tax relief to businesses impacted by the COVID-19 pandemic.  The new bill, should it be approved by the Massachusetts legislature, would freeze a statute-mandated increase in the unemployment tax schedule until 2022.  Additionally, the bill would authorize the issuance of special bonds and a surcharge fund for fees paid by contributory employers to cover the interest payments on federal advances issued to Massachusetts to cover unemployment obligation shortfalls. Without this provision, employers would see an increase in their unemployment tax obligations to cover such interest payments to the federal government.

• Rhode Island has released 2021 unemployment tax rate information indicating that experienced employers’ rates will be determined under Schedule H in 2021. Rates range from 1.2% to 9.59% (0.9% to 9.4% in 2020 under Schedule F). Rates include a 0.21% job development assessment. The taxable wage base will increase from $24,000 to $24,600 in 2021 for most employers. It will increase from $25,500 to $26,100 for employers in the highest tax rate bracket.

• Texas has issued a letter to employers stating they are working diligently to keep the 2021 tax rates as low as possible for Texas employers. The Texas Workforce Commission (TWC) is closely monitoring discussions by Congress regarding potential relief legislation to help reduce the impact of COVID-19 pandemic on 2021 tax rates. TWC is exploring all avenues of tax rate reduction for the 2021 tax rates and will mail out the 2021 tax rate notices in February 2021.

• Virginia has announced temporary changes to the unemployment insurance program that will support Virginia workers and businesses whose livelihoods have been affected by the ongoing COVID-19 crisis. Executive Order Seventy-Four requires the Virginia Employment Commission (VEC) to mitigate a potential rise in 2021 tax rates by holding employers harmless for lay-offs that occurred during the pandemic. The temporary change will protect Virginia employers from having to pay an additional $200 million to replenish the Unemployment Insurance Trust Fund. The Governor signed the special session budget that included $210 million to backfill the Unemployment Insurance Trust Fund, which is currently borrowing federal dollars to pay out benefits.

• Georgia announced that the release of the 2021 Annual Unemployment Insurance Tax Rate Notices will be delayed and anticipated to be available on the Georgia Department of Labor Employer Portal in February 2021. Employer Quarterly Tax and Wage reports will not be accepted for 1st quarter 2021 until the new tax rates are released.

• The Florida Department of Economic Opportunity (DEO) passed emergency rule 73BER20-2 (Determinations to Liable Employers) due to the unprecedented surge in reemployment assistance (i.e., unemployment insurance) claims associated with COVID-19, which has resulted in an increased burden on impacted employers to review notices of charges to their accounts. The DEO has determined that additional time is needed for impacted employers to review Form RT-1, Notice of Benefits Paid and RT-29, Reemployment Tax Reimbursement Notice and request redeterminations. The additional time is in the interest of the public welfare as it provides a measure of relief to impacted employers by facilitating and promoting accuracy with regard to charges, invoices, and credits to an impacted employer’s account (both contributing and reimbursing employers).The emergency rule states that an impacted employer’s request for a redetermination for charges incurred between March 1, 2020 through December 31, 2020, as reflected on quarterly notices to impacted employers for this time period, shall be timely if filed by January 29, 2021 or 20 days from the date of mailing reflected on the notice, whichever is later. This extension for redetermination applies only to requests to remove benefits charged that are made for documented COVID related reasons.

• The following states have allocated Coronavirus Relief Funds received under the CARES Act to their unemployment trust funds to help avoid an increase in employer UI tax rates and/or reduce the amount of advances from the federal government via Title XII advances. 

Allocation of CARES Act Funds to UI Trust Funds¹⁰

 

Summary

How quickly will the increase in SUI tax costs reach employers? Will the costs slowly ramp up as with recessions of the past? Furthermore, will the costs surge as quickly as the filing of initial unemployment claims?

The COVID-19 crisis has been severe and unprecedented. States continue to take actions to mitigate some of the financial hardship expected on employers in 2021 and beyond.

In summary, federal and state legislatures continue to react to this crisis, but time is running out for 2021. In fact, some of the provisions enacted to date attempt to make it easier for claimants to obtain benefits. However, this could negatively impact SUI tax rates. Alternatively, other provisions attempt to mitigate some of the financial hardship expected on employers in 2021 and beyond.

Keep in mind, some of the potential increase in SUI tax costs could be felt in 2021 and some thereafter.  For computation dates that are after June 30 (e.g., September 30 or December 31), 2021 SUI tax rates may be impacted even more severely.

Since the unemployment system is based on an insurance concept, employers will ultimately bear the financial burden associated with COVID-19.

To keep up-to-date, please visit our COVID-19 Resources  website which will be updated as new information becomes available. 

The 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 state that have already issued 2021 SUI tax 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.

Sources:

1    Per U.S. Department of Labor Unemployment Insurance Weekly Claims News Releases issued from March 26th to December 31, 2020. The amount reported for the week ended December 26th 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.
10   Per National Conference of State Legislatures (NCSL): State Actions on Coronavirus Relief Funds.