State unemployment insurance (SUI) trust funds are largely financed by employer contributions (except in Alaska, New Jersey and Pennsylvania, where employees also make contributions). States are required to maintain a SUI wage base of no less than the limit set under the Federal Unemployment Insurance Tax act (FUTA). The 2018 FUTA wage base of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 35 years.

According to the U.S. Department of Labor (DOL), 23 states and the Virgin Islands had a flexible wage base in 2017, meaning, the wage base can increase automatically based on certain triggers. Conversely, in 2017, the wage base was fixed in 28 states and Puerto Rico, where legislation is required for its increase or decrease. (U.S. Department of Labors, Comparison of State Unemployment Laws, 2017.)

The recent strain on SUI trust fund reserves sparked numerous state wage base changes with only three jurisdictions continuing to have a fixed wage base of $7,000 (Arizona, California and Puerto Rico, though Puerto Rico passed legislation that allows the taxable wage base to increase to as much as $10,500), compared to seven in 2010 (although in Louisiana and Tennessee the taxable wage base can decrease to $7,000 when the trust fund reaches a certain level, and in Florida the taxable wage base reverted to $7,000 beginning in 2015).

For more unemployment insurance facts and trends to consider see the 2017 Ernst & Young LLP Guide to Unemployment Insurance.

Preliminary list of 2018 state unemployment taxable wage bases

The attached Tax Alert includes a preliminary list of the 2018 state unemployment insurance (SUI) taxable wage bases (as compared to 2017) and employee SUI withholding rates, if applicable.

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EY Payroll News Flash