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July 9, 2020
2020-1754

Iowa takes steps to avoid higher employer UI taxes due to COVID-19 UI benefit payouts

On July 2, 2020, Governor Kim Reynolds announced in a press release that she is allocating $490 million of the $1.25 billion of federal funds the state received under the Coronavirus Aid, Relief, and Economic Security (CARES) Act toward the state's unemployment insurance (UI) trust fund. This transfer of funds will help to continue to pay UI benefits while also helping to avert an increase in employer UI tax rates in 2021 due to the rise in claims in connection with COVID-19.

The governor states that the $490 million deposit will allow the state to remain at Tax Table 7 for 2021, unchanged from 2019 and 2020. Under Tax Table 7, the range of employer UI rates is from 0.0% to 7.5%, the second lowest allowed by law.

The move is expected to save Iowa employers more than $400 million in UI taxes.

Individual employer UI experience will also not be adversely impacted by the payment of COVID-19 benefits because, from the outset, Iowa employer UI accounts have not been charged for these benefits.

In her press release, Governor Reynolds stated that she wants to minimize the pandemic's impact on employers so they can focus on growing and reinvesting in Iowa.

Ernst & Young LLP insights

By transferring CARES Act funds into the Iowa UI trust fund, the state has also avoided, at least for now, the need to obtain a federal UI loan, which, if not timely repaid, could result in increased federal unemployment insurance (FUTA) taxes for employers through the FUTA credit reduction.

As we previously reported (EY Tax Alert 2020-1724), as of July 1, 2020, 13 jurisdictions (California, Colorado, Delaware, Hawaii, Illinois, Kentucky, Massachusetts, Minnesota, New York, Ohio, Texas, the Virgin Islands and West Virginia) have applied for, and been approved to receive federal unemployment insurance (UI) Title XII advances (UI loans). Connecticut had previously received approval for a UI loan but has since been removed from the list. (Title XII Advance Activities Schedule, UI Department of Treasury website.)

As of July 1, 2020, California, Illinois, Kentucky, Massachusetts, New York, Ohio, and Texas have outstanding federal UI loan balances. The Virgin Islands continues to carry a federal loan balance on a loan that has existed since 2009. (US Department of Labor UI trust fund loans.)

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)
   • Kristie Lowery (kristie.lowery@ey.com)
   • Peter Berard (peter.berard@ey.com)

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