Layoffs resulting from pandemic-related business closures have helped deplete state unemployment insurance trust funds at record rates. To date, 31 states (and the District of Columbia) have scheduled to increase their state unemployment insurance taxes and/or taxable wage bases in 2021. Experts predict that many states will see multiple years of increases to pay for 2020 unemployment benefits payouts. Additionally, 22 states have applied for federally provided Title XII loans to help pay the benefits owed to unemployed workers. By law, these loans must be repaid, and depleted trust funds must be returned to pre-pandemic levels. The primary way that states do these two things is by increasing state unemployment tax rates (and sometimes unemployment benefit cuts).
(Additional reading: Why nonprofits need not worry about unemployment claims administration)
Several states, such as South Carolina and Colorado, are putting off unemployment tax increases by utilizing CARES Act funding. But many observers believe that type of effort will only put off the inevitable.
“Historically, states pass legislative changes to increase tax rate tables in an effort to re-fund the system,” said Doug Adams, Director of UI Solutions at 501(c) Services. “In a good economy, the national replacement rate is roughly 1.28, which means you will pay approximately $1.28 in taxes for every dollar you pay out in unemployment benefits. In the last recession, we saw that average replacement cost reach as high as $2.04. We should expect the same over the next few years.”
Here are the states that have announced increased state unemployment insurance tax burdens for employers either through unemployment tax increases, taxable wage base increase, or both:
Alaska: taxable wage base increase to $43,100; 0.3% solvency surcharge added to rates.
Arkansas: taxable wage base increase to $10,000
Arizona: unemployment tax rates increasing from 0.08% to 10.30% for positive-rated employers and from 10.87% to 20.60% for negative-rated employers. (updated 01/04/21)
Connecticut: rate increases planned (updated 03/23/21)
District of Columbia: unemployment taxes scheduled to increase (updated 12/07/20)
Florida: minimum tax rate increasing 190% to 0.29% (updated 12/07/20)
Idaho: taxable wage base increase to $43,200
Illinois: tax and wage base increases
Iowa: taxable wage base increase to $32,400
Kansas: taxes scheduled to increase
Kentucky: tax and wage base increases delayed until 2022 (updated 04/07/21)
Maryland: tax rate increase (updated 12/15/20)
Massachusetts: taxes increase of 60% delayed until 2023 (updated 04/06/21)
Michigan: taxable wage base increase to $9,500
Minnesota: taxable wage base increase to $36,000
Montana: taxable wage base increase to $35,300
Nevada: taxable wage base increase to $33,400
New Jersey: tax and wage base increases scheduled
New Mexico: taxable wage base increase to $26,800
New York: rate increases and a taxable wage base increase to $11,800 (updated 03/10/21)
North Carolina: taxable wage base increase to $26,000
North Dakota: taxable wage base increase to $39,400
Ohio: unemployment tax increases scheduled
Oklahoma: tax and wage base increases scheduled
Rhode Island: unemployment tax increases for 2021 ( updated 12/20/20)
Texas: rate notices delayed until July 2021 as legislature looks for ways to delay tax increases (updated 03/01/21)
Vermont: tax and wage base increases scheduled
Washington: wage base increase to $56,500; rate increases delays until 2025 (updated 02/09/21)
Wyoming: wage base increase to $27,300
NONPROFITS HAVE OPTIONS
The above applies to many employers except 501(c)(3) organizations. 501(c)(3)s do not have to pay state unemployment insurance taxes – high or low. Many nonprofits could save as much as 30 percent or more on their unemployment costs by opting out of the unemployment insurance tax system – an advantage provided to them by the IRS. Doing so affords nonprofits unique avenues that allow them to strategically handle unemployment risk in ways that for-profits can only dream about.
Contact us today for more information concerning your nonprofit unemployment insurance tax advantages.