Thirty-one states and the Virgin Islands are borrowing from the federal government (specifically, the Federal Unemployment Account) to pay UI benefits. Under current federal law, states must pay interest if a loan is outstanding for a sufficient length of time. In anticipation of liability for interest, several of these states have taken action to recover the interest charges from employers.
This is a fast-moving development. Some states have enacted legislation to levy surtaxes and other states have such surtaxes under consideration. This could result in unanticipated assessments from state UI agencies as the year progresses.
Meanwhile, the Administration’s budget proposal for fiscal year 2012 was released in February, and the proposal would eliminate the interest charges for 2011 and 2012. Of course this is a proposal, and whether or not it is enacted remains to be seen. It is certainly possible that employers in several states will pay surtaxes, as mandated by state law, only to have federal law forgive the interest which triggered the surtaxes. Our discussions with state officials lead us to believe that state agencies will either refund surtax payments or credit them to employers’ UI tax accounts in the event that interest on federal loans is forgiven.
Following are examples of assessments and proposed assessments that are over and above your normal quarterly UI tax payments:
Alabama: A special assessment will be levied upon employers by May 15, 2011 and due within 30 days. The assessment is calculated as a percentage multiplied by taxable payroll for the previous calendar year.
Arizona: If passed, HB 2025 (introduced in 2011) would create a 0.40% assessment on employers to repay loan principal and interest in 2011 and increases to 0.60% in 2012.
Arkansas: A 0.20% Advance Interest Tax will be levied upon employers April 1, 2011.
Colorado: A special assessment will be levied upon employers August 1, 2011 and due within 30 days. The assessment is calculated as a percentage multiplied by total payroll and paid on the quarterly report. Exempt employers include those with no charges against their account or those with a positive reserve ratio of at least 7.00%.
Connecticut: A special assessment will be levied upon employers August 1, 2011 and due within 30 days. The assessment is calculated as a percentage multiplied by taxable payroll for the previous calendar year.
Delaware: A special assessment will be levied upon employers no later than June 30, 2011 and due within 30 days. The assessment is calculated as a percentage multiplied by taxable payroll for the previous calendar year. The assessment is expected to be in the range of 0.12% of taxable payroll for calendar year 2010.
Florida: A special assessment was levied upon employers on January 22, 2011 and is due by June 30, 2011. The assessment is calculated as a percentage multiplied by taxable payroll for the previous fiscal year ending June 30, 2010.
Hawaii: HB 1077/SB 1304 authorizes the use of the Employment & Training Assessment Fund to repay Title XII loan interest and permits the Director to increase the rate in increments of 0.01%.
Indiana: HB 1450 contains a surcharge on employers to cover the interest payment. However, the bill also reduces the tax rate schedule from Schedule B this year and Schedule A (the highest rate) next year to Schedule E for 10 years.
Michigan: A Solvency Tax of 25% has been added to negative balance employer rates.
Minnesota: Minnesota has a standing surcharge which triggers on when the trust fund is borrowing and has to pay interest. The surcharge payable with 2011 UI taxes has been set at the lowest percentage allowed by statute, 2.00% of unemployment taxes due.
Missouri: A special assessment calculated as a percentage multiplied by taxable payroll for the previous calendar year will be levied upon employer’s second quarter return.
New Jersey: On June 30, 2011 the Commissioner will determine whether there are sufficient funds in the Auxiliary Fund to cover interest payments. If there are not sufficient funds, an assessment determined by a percentage multiplied by taxable payroll for the previous calendar year will be mailed on or before July 31, 2011 and due within 30 days.
New York: A special assessment calculated as a percentage multiplied by taxable payroll for the previous calendar year will be mailed to employers after April 30, 2011. The amount of the percentage for 2011 will be mailed with the 2011 rate notices.
Pennsylvania: The Interest Tax Rate is set at 0.44% for 2011 and has been added to all existing employers’ rates.
Rhode Island: A 0.30% surcharge has been added to the Job Development Fund Rate for 2011. This surcharge is paid as a separate charge on the quarterly contribution report.
South Carolina: When the UI Fund is insolvent the state imposes an additional surcharge on all employers to pay interest on the outstanding debt. For 2011, the surcharge rates vary by rate class ranging from 0.043% to 0.549%.
Wisconsin: A special assessment calculated as a percentage multiplied by taxable payroll for the previous calendar year will be mailed to employers in August 2011.
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