March 1, 2021
Washington legislation reduces 2021 SUI tax rates; revised rate notices issued to employers, other COVID-19 updates
Recently enacted SB 5061 reduces the 2021 state unemployment (SUI) tax rates for experience-rated employers effective December 18, 2020. As a result, the Washington Employment Security Department has issued revised 2021 SUI tax rate notices, dated February 26, 2021.
Employer SUI tax rates for 2021 now range from 0.2% to 6.0%, down from an original range of 0.23% to 6.0%, and up from 0.10% to 5.7% for 2020. These tax rates do not include the additional Employment Administration Fund (EAF) surcharge and the possible delinquency tax rate which can add up to 2.0% to employers' computed tax rates.
The average SUI tax rate for 2021 is 1.06% (a 38% tax cut due to SB 5061), up from 1.03% for 2020.
New businesses are assigned a tax rate that is 90%, 100% or 115% of their industry's average, depending on the benefits charged and the taxes collected from new employers during the previous three years. For 2021, new employer rates are set at 115% of the industry average.
The additional 0.03% Employer Administrative Fund (EAF) surcharge continues to be assessed against all experience-rated employers for 2021 (0.02% for new-employer, maximum-rated and delinquent employers). This surcharge is not certified by the Department to the federal government as SUI taxes and should not be used to compute the federal unemployment insurance (FUTA) tax liability.
Increased unemployment insurance (UI) minimum weekly UI benefit amount
SB 5061 increases the weekly minimum UI benefit amount from 15% of the average weekly wage to 20% of the average weekly wage beginning July 1, 2021. As a result, the minimum weekly UI benefit amount is projected to increase from the current $201 to $270 as of July 1, 2021. Starting in January 2022, the minimum weekly UI benefit amount cannot be higher than the average weekly wage the individual was earning while they were still employed.
2021 taxable wage base
Due to a 6.7% increase in the average annual wage for 2019, the SUI taxable wage base increased to $56,500 for calendar year 2021, up from $52,700 for 2020.
Employers' accounts not charged with COVID-19 benefits through May 30, 2020
SB 5061 also relieves employers of all UI benefit charges attributed to benefit claims that occurred during the period of March 22, 2020 to May 30, 2020. UI benefits paid outside of this time period, even if due to COVID-19, are chargeable to employer accounts under the usual UI benefit law. According to a Department representative, the law change supersedes the ability of employers to request relief from COVID-19 UI benefit charges. (Telephone conversation, tax representative; EY Tax Alert 2020-1853, 7-21-2020.)
According to Washington Governor Jay Inslee's press release:
SB 5061 relieves employers of individual benefit charges for claims that occurred between March 22 and May 30, 2020, the period of the governor's "Stay Home, Stay Healthy" order, and caps certain tax rates through 2025. Together, these actions prevent a $1.7 billion spike in unemployment taxes over the next five years, including just over $920 million in rate increases this year. At a time when revenue is down and employers are facing increased costs of business, this bill offers much needed relief.
In information contained in the original 2021 SUI tax rate notice, the Department stated that other revisions to employer rates may be necessary due to UI benefits charge adjustments resulting from workers rotating between programs funded by the federal government and those funded by Washington. Accordingly, employers were cautioned that they may receive a recomputed SUI tax rate during 2021. The Department requested that employers wait to file their first quarter 2021 SUI tax returns until close to the filing due date of April 30, 2021.
Shared work changes
SB 5061 amends state law so that shared work UI benefits are not charged to employer accounts when fully financed by the federal government. Currently, shared work benefits are fully financed by the federal government through the week ending March 13, 2021. The bill also amends prior law such that employers are required to have at least two employees (previously one) enrolled in the shared work program to participate and makes clear that employees in the shared work program can participate in approved training (the U.S. Department of Labor identified conformity issues with the state's previous law, necessitating the change).
Voluntary contribution program enhanced
SB 5061 makes changes to the Department's voluntary contribution law, making it easier for more employers to take advantage of this statutory election.
Previously, experience-rated employers could, under very limited circumstances, make a voluntary contribution by February 15 of the tax year to reimburse the Department for UI benefit charges within the computation period and reduce their SUI tax rate by at least four rate classes (brackets). To be eligible to make a voluntary contribution, the employer's SUI tax rate must have increased by 12 rate classes over the previous year's SUI tax rate. A 10% surcharge had to be added to the voluntary payment.
SB 5061 removes the 10% surcharge; opens the program up to employers that have moved eight, rather than 12, rate classes; allows employers to buy down enough UI benefit charges to move down at least two, rather than four, rate classes; and extends the deadline to make the voluntary contribution from February 15 to March 31. As a result, employers may make a voluntary contribution to reduce their 2021 revised tax rates by March 31, 2021.
2021 SUI tax rate recalculation
Under SB 5061, the computation of the "graduated social cost factor" portion of employer SUI tax rates, which is based on costs from the previous year for benefit payments that can't be attributed to specific employers, will be based on a flat multiplier of 0.5% for 2021; not more than 0.75% for 2022; 0.8% for 2023; 0.85% for 2024; and 0.9% for 2025.
The original social cost factor of 1.22% for 2021 is reduced to 0.5%. The Department anticipated that the social cost factor would have remained at 1.22% for 2022, now to be held at not more that 0.75%.
In addition, SB 5061 (and, for 2021, the governor's Executive Order 20-81) suspends the assessment of a solvency surcharge of 0.2% for tax years 2021-2025. The surcharge is assessed when the balance of the state UI trust fund as of the September 30 preceding the tax year is not sufficient to pay seven months of UI benefits.
The law's changes in computing employer SUI tax rates are projected to initially prevent a cost increase to employers of over $921 million for 2021 and $1.7 billion overall from 2021 through 2025.
Computing tax rates
Washington's SUI tax rates are made up of two components. The first component is the experience-based tax, which is based on the amount of unemployment benefits paid to former employees over the past four years. There are 40 experience-rate classes, and businesses move up or down those classes based on their past experience.
The second component is called the social-cost tax which covers unemployment costs that cannot be recovered from specific businesses. The social-cost tax is shared by all employers (e.g., benefits paid to workers whose company went out of business). During economic downturns, when benefits paid far exceed taxes collected, the social-cost tax also acts like a brake to slow the decline of the trust fund so employers aren't hit by sharper, more sudden tax increases in the future. SB 5061 freezes the social-cost tax computation to set multipliers for 2021-2025 (see above).
Delinquency tax rates
Employers delinquent in the payment of taxes or filing of quarterly SUI returns as of the September 30 preceding the rate year will have 1% added to their experience rate (2% in the second year). In the first year of receiving a delinquent tax rate, an employer can reduce the delinquent rate by 0.5% by paying off the entire debt or by entering into a deferred payment contract within 30 days after the mailing date of the employer's SUI tax rate notice.
Ernst & Young LLP insight
According to the federal Treasury Direct website, as of February 19, 2021, Washington has not yet requested the option to receive federal UI Title XII advances (UI loans).
However, due to the decreased SUI taxes resulting from passage of SB 5061, the Department anticipates that the state will be required to begin borrowing in the fourth quarter 2021, when the state's UI trust fund is expected to become insolvent. The Department anticipates that these federal UI loans will be repaid by November 10, 2023, relieving employers of seeing a FUTA credit reduction for calendar year 2023. Previously, the Department predicted there would not be a need to borrow from the federal government.
The Department projects that the state's UI trust fund balance will be roughly $805 million at the end of 2023, $1.9 billion at the end of 2024 and $3.2 billion at the end of 2025.
For more information on the Department's summary of SB 5061 provisions, see the Department's website.
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