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October 26, 2020

Tennessee began charging employer accounts with COVID-19 UI benefits on October 1, 2020; CARES Act funds allocated to the state UI trust fund to prevent employer tax increases in 2021

The Tennessee Department of Labor and Workforce Development announced that it extended the period during which employers will not be charged for COVID-19 unemployment insurance (UI) benefits through September 30, 2020 (extended from July 31, 2020). As a result, employers were not charged for UI benefits paid for COVID-19-related reasons from March 15, 2020 through September 30, 2020. (SB 2520 (Chapter 745).

The Department initially announced it would begin charging COVID-19 employer accounts on August 1, 2020, but extended that time to October 1, 2020.

Tennessee governor allocates CARES Act funds to the state UI trust fund to prevent employer tax increases in 2021

Tennessee Governor Bill Lee announced that a portion of its CARES Act funds will be allocated to the Tennessee UI trust fund to prevent the balance from falling below $1 billion as of December 31, 2020, which would automatically trigger an increase in employer UI tax rates in 2021.

According to the governor's news release, without the transfer of funding, employer UI tax rates could have risen by at least 300% in 2021. Because of the transfer of CARES Act funds to the UI trust fund, the UI employer tax rate schedule will remain at the lowest allowed by law, rather than moving to the highest UI employer tax schedule, causing an increase to Tennessee employers of approximately $837 million.

The balance of Tennessee's unemployment trust fund on June 30 and December 31 of any year determines which one of six UI employer rate schedules will be assigned to nongovernmental employers for the following two calendar quarters.

Additionally, the UI taxable wage base, currently at $7,000, the lowest allowed, could have increased to as much as $9,000 per employee. If the UI trust fund balance on December 31 of any year is less than $900 million, the taxable wage base is $9,000. If the trust fund balance is above $900 million, but less than $1 billion on December 31, the taxable wage base is $8,000. If the trust fund balance is over $1 billion on December 31, the taxable wage base is $7,000.

Tennessee SUI tax rates continue at lowest rate schedule for last half of 2020

According to the Department's website, the employer state unemployment insurance (SUI) tax rate schedule is unchanged at the lowest rate schedule possible for the third and fourth quarters 2020.

Because the SUI trust fund balance continued to exceed $850 million as of June 30, 2020 (actual balance was $1,069,860,647, down from $1,278,676,435 at the same time last year), SUI tax rates continue to range from 0.01% to 10.0% on Premium Rate Table 6 for the 2020 third and fourth quarters (though individual SUI tax rates may have increased or decreased as of July 1, 2020 because tax rate factors affect tax rates on a fiscal year basis).

Most new employers continue to pay at 2.7% for fiscal year 2021 (July 1, 2020 through June 30, 2021). New construction employers will pay at 5.0%.

A Department representative told us that the fiscal year 2021 SUI tax rate notices were issued to employers beginning on August 24, 2020. (Email response to inquiry, August 18, 2020.)

Note that the SUI tax rate schedule may change as of January 1, 2021, increasing tax rates for the first and second quarters 2021, if the level of the state's UI trust fund balance falls below $850 million. The taxable wage base may also change for 2021 from the current $7,000 if the trust fund balance falls below $1 billion as of December 31, 2020.

For more information on unemployment taxes in Tennessee, see the Department's website.

Work search requirements resume

The Department announced that beginning September 27, 2020, UI benefit claimants must again begin searching for work to continue receiving UI benefits unless the claimant was given a definitive return-to-work date by their employer or has a COVID-19 related exemption (as provided for in the federal CARES Act).

For more information on the Department's response to COVID-19, go here.

Ernst & Young LLP insights

Tennessee is one of four states (New Hampshire, New Jersey, Tennessee and Vermont) that assign SUI tax rates on a fiscal-year rather than a calendar-year basis. As a result, new tax rate calculations take effect as of July 1, 2020 and are effective through June 30, 2021, though Tennessee tax rates may change as of January 1, 2021 if size of the SUI trust fund as of December 31, 2020 falls low enough to move to a new rate schedule.

According to the federal Treasury Direct website, as of October 19, 2020, Tennessee has not yet requested the option, if needed, to receive federal unemployment insurance (UI) Title XII advances (UI loans) to bolster its UI trust fund.


Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (
   • Kristie Lowery (
   • Kenneth Hausser (


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