One way to generate more UI tax revenue is to increase the state unemployment taxable wage base. West Virginia and Tennessee have both recently enacted legislation which retroactively increases their wage bases, which is uncommon. Because of the need to shore up the state unemployment trust funds, we anticipate that several more states will increase their wage bases for next year (Arkansas, Indiana, and Florida have already done so).
Last month West Virginia law was changed to increase the state unemployment taxable wage base from $8,000 to $12,000 retroactively to January 1, 2009. This constitutes a 50% tax increase on wages paid to employees whose annual earnings equal or exceed $12,000. The West Virginia Unemployment Compensation Division advises that you should adjust your wage and contribution reports (and tax payments) for the second quarter to make up for any under-reporting for the first quarter.
Similarly, Tennessee law has now been amended to increase the state unemployment taxable wage base from $7,000 to $9,000 retroactively to January 1, 2009. This constitutes a 28.5% tax increase on wages paid to employees whose annual earnings equal or exceed $9,000. Tennessee advises that you may adjust your second quarter reports to compensate for any under-reporting for the first quarter, or you may amend your first quarter reports.
Both the West Virginia and Tennessee amendments contain provisions to reduce the taxable wage base in the future if the state trust fund balance reaches a certain threshold. It appears to us that any such reduction is at least three years away.
The Tennessee legislation also increases all premium (tax) rates based on experience by 0.60% retroactively to January 1, 2009, and you will receive a statement showing the additional balance due for the first quarter. The 0.60% additional tax will remain in effect until the Tennessee Unemployment Trust Fund balance equals or exceeds $650 million, which we expect will take at least three years.
The new-employer tax rate for non-construction employers in Tennessee will remain at 2.70% and will not be subject to the 0.60% additional tax. However, the tax rate for new construction employers is impacted, and increases from 5.00% to 5.60%.
Employers with low tax rates, who arguably have contributed the least to job losses, are impacted the most by the Tennessee legislation. A Tennessee employer who was assigned a 1.10% tax rate prior to the legislation will now pay $153 per employee annually rather than $77 (a 99% tax increase).
Both the West Virginia and Tennessee amendments provide for an alternative base period. This allows more claimants to qualify for benefits when their wage history is too recent for them to qualify otherwise. The alternative base period is one of the requirements for a state to receive its share of the $7 billion in available federal incentive payments. Many additional states have UI legislation pending to expand UI eligibility and cash in on the federal funds.
The Tennessee legislation also liberalizes unemployment benefits by authorizing dependant allowances ($15 per week, per dependent, to a maximum of $50 per week) and authorizing unemployment benefits for individuals seeking part-time work if such work is for a minimum of 20 hours per week.
By establishing the alternative base period and the dependent allowances, Tennessee expects to qualify for $141 million in one-time federal funds. However, the cost of the permanent increase in unemployment benefits is expected to be $29.5 million per year. In other words, the federal funds are expected to subsidize the increased benefits for only 4.8 years, after which Tennessee employers will shoulder the additional burden.
Click here for news releases from both states. As always, please contact us at (615) 242-8246 if there are any questions.
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