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July 14, 2020
2020-1792

Congress makes it easier for nonprofit and governmental employers to receive a 50% reduction in COVID-19 UI benefit claim charges

Under a measure passed by the House and Senate and expected to be signed into law by President Trump, an amendment is made to the Coronavirus Aid, Relief, and Economic Security (CARES Act) that would allow states the option of requiring that nonprofit, governmental and federally-recognized Indian tribe employers reimburse to the state only 50% of the unemployment insurance (UI) benefits paid to their employees for the period of unemployment beginning on March 13, 2020 and ending on or before December 31, 2020. (S. 4209.)

Background

Rather than pay UI based on an assigned tax rate (i.e., contributory employer), state and local governmental entities, certain nonprofit organizations and federally-recognized Indian tribes have the option under federal law to reimburse the state directly for UI benefits paid to their employees (i.e., reimbursing employers).

Under Section 2103 of the CARES Act, and for the period of unemployment beginning on March 13, 2020, and ending on or before December 31, 2020, transfers are authorized from the federal unemployment account (FUA) to state unemployment trust funds for 50% of the amount of UI benefits paid to employees of reimbursing employers. This transfer applies for the covered period, even if individuals are unemployed for reasons other than COVID-19.

The US Department of Labor explained in its unemployment insurance program letter (UIPL 18-20) that under this CARES Act provision, reimbursing employers remit to the state 100% of the UI benefits paid to their employees. Upon receipt of payment from the reimbursing employer, the state may then refund to that employer up to 50% of the UI benefits paid in the covered period.

Ernst & Young LLP insights

The CARES Act amendment under S. 4209 would give states the option of relieving reimbursing employers of the financial hardship of fronting cash for 50% of UI benefit claims that will later be refunded. This relief comes at a time when some reimbursing employers may be experiencing a large increase in UI claims due to COVID-19 and may not have the ability to reimburse the state for 100% of those claims.

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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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