December 23, 2020
California 2021 unemployment, disability and employment training tax rates and limits
Following are the 2021 state unemployment insurance (SUI), state disability insurance (SDI) and Employment Training Tax (ETT) rates and limits, as provided by the California Employment Development Department (EDD) and an EDD representative. (California Employment Development Department website; Email response to inquiry, 12-2020.)
2021 SUI tax rates and taxable wage base
The SUI taxable wage base for 2021 remains at $7,000 per employee. According to the EDD, the 2021 California employer SUI tax rates continue to range from 1.5% to 6.2% on Schedule F+. The new employer SUI tax rate remains at 3.4% for 2021. As a result of the ratio of the California UI Trust Fund and the total wages paid by all employers continuing to fall below 0.6%, the 2021 SUI tax rates continue to include a 15% surcharge. The SUI rate schedule is expected to remain F+ for the foreseeable future.
2021 SDI rates and taxable wage base
Per Department's website, the 2021 employee SDI withholding rate, which includes disability insurance and paid family leave, increases to 1.2%, up from at 1.0%.
The 2021 SDI taxable wage base is $128,298, up from $122,909 for 2020.
The maximum SDI to withhold from employees' paychecks for 2021 is $1,539.58, up from $1,229.09 for 2020.
According to the October 2020 DI fund forecast, the DI fund balance was $3.3 billion at the end of 2019. The DI fund balance is projected to be $1.6 billion at the end of 2020, and $0.2 billion at the end of 2021. The decrease in the projected 2020 and 2021 year-end fund balance is due to the COVID-19 pandemic, higher benefits paid, lower anticipated contributions due to a decrease in projected taxable wages, and a change in the contribution rate formula.
Employment Training Tax (ETT)
The ETT rate for 2021 remains at 0.1%. The ETT taxable wage base for 2021 remains at $7,000 per employee.
For more information on California payroll taxes, see the EDD website.
California's UI trust fund is insolvent due to the COVID-19 pandemic
It is estimated that California will end 2020 with a federal UI loan balance of $21.5 billion and a UI trust fund deficit of $48.3 billion by the end of 2021. (October 2020 EDD UI trust fund forecast.)
Despite an anticipated loan balance at the end of 2020, the federal unemployment insurance (FUTA) tax credit reduction will not be assessed for 2020. The EDD currently anticipates that FUTA credit reductions will start occurring for tax year 2022 (the additional FUTA tax due with the Form 940 filed in 2023).
Due to the previous economic downturn, on January 26, 2009, California began borrowing from the federal government to pay UI benefits. The EDD repaid its federal UI loan balance in 2018 prior to the November 10, 2018 deadline to avoid the FUTA credit reduction for 2018. As a result, the FUTA minimum net rate of 0.6% returned for calendar years 2018—2019 (employers saw FUTA credit reductions for calendar years 2011—2017).
Mailing of 2021 rate notices and protest deadline
The SUI, ETT, and SDI tax rates are combined on a single rate notice, Notice of Contribution Rates and Statement of UI Reserve Account (DE 2088). The Department mailed the 2021 SUI rate notices to employers in November 2020, showing a December 31, 2020 mailing date. Tax rate notices are also available on the Department's e-Services for Business website.(Department news release.)
Employers have 60 days from the mailing date of to protest any item on the rate notice except SDI and ETT, which are specifically set by law.(EDD Publication DE 2088C.)
Unemployment insurance voluntary contributions
Because Schedule F+ is in effect, voluntary contributions to reduce the SUI tax rates are not allowed for 2021.
Employers should not be charged with COVID-19 UI benefits
The annual Form DE 428T, Statement of Charges to Reserve Account was issued to contributory employers with a mail date of September 4, 2020. The document reflected the employer's UI benefit charges for the period of July 1, 2019 through June 30, 2020. These charges were used in the computation of the calendar year 2021 state UI tax rates. (Department tax branch listserv news #443, 08-04-2020.)
The fiscal year 2021 budget legislation (AB 103) provides that, from January 27, 2020, through December 26, 2020, contributory employer UI reserve accounts will not be charged for UI benefits paid as a direct result of COVID-19. (EY Tax Alert 2020-1715; News release, governor's office, 6-29-2020.)
In its announcement, the EDD confirmed that the FY 2020 Form DE 428T "is only reflecting charges outside of the timeframe established by AB 103."
Under the AB 103 non-charge provision, an employer, or an agent of an employer, must not be found to be at fault for the payment of UI benefits under state law §1026.1 to be relieved of COVID-19 UI benefit charges. State law §1026.1 was instituted in 2013 to meet federal requirements that employers not be relieved of UI benefit charge overpayments due to the failure of the employer or its agent to timely and/or adequately respond to UI benefit claim notices.
As a result, a protest of Form DE 428T may be denied if the employer failed to respond to the first claim notice, Form DE 1101CZ, Notice of Unemployment Insurance Claim Filed or Form DE 1545, Notice of Wages Used for Unemployment Insurance (UI) Claim.
For more information on the benefit charge statement, see the EDD's Information Sheet: Statement of Charges to Reserve Account DE 428T (DE 428I).
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