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Pandemic-related unemployment claims force states to raise taxes in 2021

By January 5, 2021January 15th, 2021Newsletter

Layoffs resulting from pandemic-related business closures have helped deplete state unemployment insurance trust funds at record rates. So far, 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 readingWhy 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.”

To date, 28 states (and the District of Columbia) have scheduled to increase their state unemployment insurance taxes and/or taxable wage bases for 2021. Experts predict that many states will see multiple years of increases to pay for 2020 unemployment benefits payouts.

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)

District of Columbia: unemployment taxes scheduled to increase (updated 12/07/20)

Floridaminimum tax rate increasing 190% to 0.29% (updated 12/07/20)

Hawai’i: taxable wage base scheduled to drop to $47,400; tax rates jump to highest schedule (12/7/20)

Idaho: taxable wage base increase to $43,200

Illinoistax and wage base increases

Iowa: taxable wage base increase to $32,400

Kansas: taxes scheduled to increase

Kentuckytax and wage base increases

Maryland: tax rate increase (updated 12/15/20)

Massachusettstaxes scheduled to increase 60%

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 Jerseytax and wage base increases scheduled

New Mexico: taxable wage base increase to $26,800

New York: taxable wage base increase to $11,800

North Carolina: taxable wage base increase to $26,000

North Dakota: taxable wage base increase to $39,400

Ohio: unemployment tax increases scheduled

Oklahomatax and wage base increases scheduled

Oregontax and wage base increases scheduled

Utahtax and wage base increases scheduled

Vermont: tax and wage base increases scheduled

Washington: wage base increase to $56,500

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.

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