Employer unemployment tax rate increases likely coming to 2 states

Give Payroll the heads up: There’s a chance the unemployment tax rate could change. Here’s why.

States that had outstanding federal unemployment trust fund account loan balances as of Jan. 1, 2021, and Jan. 1, 2022, are at risk of a Federal Unemployment Tax Act (FUTA) increase for tax year 2022 of 0.3% (or approximately $21 per employee).

According to www.uwcstrategy.org (UWC), employers in California and New York are the most likely to get hit with this increase because the Golden State and the Empire State are “the least likely states at this point” to pay off their outstanding unemployment loan balances by Nov. 10, 2022.

States to watch

The good news is many states are putting plans in place to pay off their balances by November 10 to avoid an FUTA increase for 2022.

UWC reports that as of May 24, Colorado, Connecticut and Illinois had loan balances. But in Colorado, legislation has been passed to pay the outstanding amount down by $600 million using American Rescue Plan Act (ARPA) funds. The Centennial State may also use additional alternative financing. Meanwhile, Connecticut and Illinois have a history of using alternative financing to pay off their balances.

Massachusetts recently enacted bond authority to provide the option of using bonds to eliminate unemployment loan balances.

Although Minnesota, New Jersey and Pennsylvania don’t have an outstanding loan balance, these states have requested authorization for advances to pay unemployment compensation in the next three months. If state unemployment contribution revenue declines for the second and third quarter, the advances may be needed to cover balance amounts that come from benefit payout increases before November 10.

Eye on unemployment interest

States with outstanding federal unemployment trust fund loan balances also face a September 30 deadline to pay the interest that’s due.

Under federal law, the interest must be paid with funds other than state unemployment contributions from employers. States with Coronavirus Aid, Relief and Economic Security (CARES) Act and ARPA funds in their coffers may decide to use that money to pay the interest, sparing their employers a FUTA increase.

Unfortunately, New York employers could be facing a surtax to pay that interest. UWA said that New York deferred three-fourths of the interest due for FY 2021 and is required to pay one-third of the remaining interest by September 30 for each of the three succeeding calendar years, with no accruals on the outstanding interest balance under Title XII Section 1202(b)(3)(C) of the Social Security Act.

States can apply for delays or deferrals of interest payments by July 1, 2022. For more info on that, click here.