December 11, 2020
Preliminary list of state unemployment insurance wage bases for 2021
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 an SUI wage base of no less than the limit set under the Federal Unemployment Tax Act (FUTA). The 2021 FUTA wage limit of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 36 years.
Some states are conservative in their approach to maintaining adequate SUI trust fund reserves. Consequently, the SUI wage base is flexible in those states, meaning it is indexed to the average wage or varies based on the trust fund balance. According to the U.S. Department of Labor, 24 states and the Virgin Islands had a flexible wage base in 2020. (U.S. Department of Labor, Comparison of State Unemployment Laws, 2020.)
As a result of the COVID-19 pandemic, several states are considering or have passed legislation or have issued executive orders to change their UI laws, bolster UI trust funds and/or provide relief to their employers. For example, several states have transferred federal stimulus under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to their UI trust fund balances to avoid significant increases in employers' 2021 SUI tax rates. In addition, most states, at least for a period of time, chose not to charge employer reserve accounts with COVID-19 UI benefits.
A preliminary look at the 2021 state unemployment taxable wage bases
Following is a preliminary list of the 2021 SUI taxable wage bases (as compared to 2020) and employee SUI withholding rates, if applicable.
* Law sets the taxable wage base; legislation would be necessary to change.
** See footnote below.
*** Due to the high volume of COVID-19 UI benefit claims, the state is delayed in issuing 2021 SUI tax rate
information and notices.
EST: Estimated 2021 wage base
TBD: 2021 wage base was not available as of the time of this printing
2019 legislation (SB 298/Act 512) changes the way that Arkansas determines the SUI wage base starting with tax years after 2019. The SUI wage base, set by law at $10,000 for 2018 and 2019, is now determined each year by the average seasonally unadjusted UI benefit rate for the preceding fiscal year (July 1 through June 30). Depending on the UI benefit rate, the SUI wage base could range from $7,000 to $10,000. In addition, during times when the UI trust fund balance falls below a specified level, the SUI wage base could increase to $11,000 or $12,000. According to a Department representative, the taxable wage base will increase to $10,000 for 2021.
2020 legislation (SB 20-207) sets the SUI taxable wage base at $13,600 for calendar year 2021 and provides that the SUI taxable wage base will increase incrementally to $30,600 by calendar year 2026.
2013 legislation (HB 168) increased the SUI taxable wage base to a minimum of $10,500 and a maximum of $18,500 by linking the wage limit to the balance of the state's unemployment trust fund. The higher the trust fund balance, the lower the taxable wage base. 2019 legislation (HB 198) froze the taxable wage base at $16,500 for 2020 (under the bill language from July 1, 2019 to October 29, 2020) so that the Division of Unemployment Insurance and the Unemployment Compensation Advisory Council could determine whether the formula used to calculate the annual figure should be revised. According to a Division representative, the taxable wage base will remain at $16,500 for 2021.
The taxable wage base is expected to continue to increase by $300 each calendar year until it reaches $12,000.
2020 legislation (SB 55/Act 40) provides that the SUI taxable wage base will remain at $7,700 for 2021.
The SUI taxable wage base is expected to increase for 2021 from the $9,000 that has been in effect for the past several years to the $9,500 that is currently only assigned to delinquent employers. Michigan's UI trust fund balance fell below $2.5 billion on June 30, 2020, the balance required for the $9,000 wage base to be in effect. Legislation introduced in September 2020 (HB 6136) would, if enacted, freeze the SUI taxable wage base at $9,000 for calendar year 2021.
2019 legislation (LB 428) increases the SUI taxable wage base to $24,000 for employers assigned the maximum rate. This change was effective for calendar year 2020. The taxable wage base remains $9,000 for all other employers.
Employee contribution rate includes the Workforce Development/Supplemental Workforce Funds surcharge.
The taxable wage base will continue to increase as follows: 2022 — $12,000; 2023 — $12,300; 2024 — $12,500; 2025 — $12,800; 2026 — $13,000; for each year thereafter, computed as 16% of the state's average annual wage.
2016 legislation (SB 235) increased the SUI taxable wage base to $9,500 for calendar years 2018 and 2019. The taxable wage base reverted to $9,000 effective January 1, 2020 and will remain at that amount unless changed by future legislation.
2017 legislation grants the territory's Secretary of Labor the discretion to increase the taxable wage base to as much as $10,500 if deemed necessary.
Negative-balanced employers assigned the maximum tax rate will have a taxable wage base that is $1,500 higher than other employers (e.g., because the 2020 taxable wage base is $24,000, these negative-balanced employers pay taxes on the first $25,500 in wages).
Under Tennessee UI law, 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. The Tennessee UI trust fund balance as of November 30, 2020, was $1,165,876,123. If the balance remains above $1 billion as of December 31, 2020, the 2021 taxable wage base will remain $7,000.
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