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Recently enacted HB 413/Chapter 177 reduces 2021 Kentucky employer state unemployment insurance (SUI) tax rates by freezing the rate schedule to Schedule A, the lowest rate schedule provided for by law and the same rate schedule that applied in 2021. (Kentucky Office of Unemployment Insurance, electronic workplace for employment services (KEWES) website.)

The original 2021 SUI tax rates were based on Rate Schedule E, ranging from 1.0% to 10%. The 2021 SUI tax rates will now range from 0.3% to 9% on Rate Schedule A. New employers will continue to pay at 2.7%, with the exception of construction employers that will pay at 9%.

2021 SUI wage base retroactively lowered

HB 413 freezes the 2021 SUI taxable wage base to $10,800, rather than the increase to $11,100 that was originally published. (Kentucky Office of Unemployment Insurance, electronic workplace for employment services (KEWES) website.)

The unemployment tax relief provided under HB 413 also extends to 2022

HB 413 also freezes the rate schedule to Schedule A and taxable wage base to $10,800 for calendar year 2022.

Governor Andy Beshear line-item vetoed the provisions that extended the UI tax relief to calendar year 2022, saying that the state should wait and see until 2022 because "the Commonwealth's financial situation is fluid." The legislature overrode the governor's veto.

Service upgrade fund suspended for 2021

For calendar year 2021, the diversion of 0.075% to the service capacity upgrade fund (SCUF) is suspended due to the condition of the state's UI trust fund balance. The diversion will be evaluated again for calendar year 2022 based on the UI trust fund balance as of December 31, 2021. As a result, employers will be given full credit for their 2021 SUI contributions.

Kentucky will not assess employers for the repayment of federal interest in 2021–2022

HB 413 suspends the issuance of federal interest assessments to employers for calendar years 2021 and 2022.

Under the American Rescue Plan Act (ARPA), interest on federal unemployment insurance (UI) loans to pay UI benefits starting in 2020 will begin to accrue as of September 7, 2021 (extended from January 1, 2020, by the Families First Coronavirus Response Act and from March 15, 2021, under the Consolidated Appropriations Act). As a result, and unless further federal legislation is enacted, the first interest payments on federal UI loans will begin to be due from states in the fall of 2021.

Most states pass the cost of federal UI loan interest on to employers in their states through surcharges that are added to the regular state UI tax rate. (See USDOL Program Letter No. 14-21.)

Revised tax rate notices issued in April 2021 ?

Revised tax rate notices were issued to employers in April 2021 and are available on the agency's Employer Self Service system. Employers that did not receive their revised SUI tax rate before the April 30, 2021 deadline for filing the first quarter 2021 SUI return were encouraged to use their originally received SUI tax rate.?Employers may request a credit or refund of any overpayment using their electronic account.

The original 2021 SUI rate notices were mailed to employers on December 15, 2020.

Employers not charged for COVID-19 UI benefits

According to the agency, and in compliance with Governor Beshear's executive order, contributory employers were not charged for any COVID-19 UI benefits paid out during the second, third and fourth quarters of 2020 in an effort to keep employer tax rates as low as possible for 2021. (Kentucky's KEWES website, governor's executive order, 3-25-2020; EY Tax Alert 2020-1152, 4-29-2020.)

HB 413 further provides that any UI benefits paid to claimants during a state or federal state of emergency or disaster declaration will be charged to the agency's "pooled" account and not to individual employer reserve accounts.

For more information

For more information on Kentucky SUI taxes, see the Division's website.?

Ernst & Young LLP insights

In November 2020, the governor pledged to allot $298 million to bolster the state's UI trust fund and up to $335 million to pay down the state's federal UI loan balance. (News release, media briefing and spreadsheet, 11-5-2020.)

As of May 1, 2021, the U.S. Department of Treasury shows that Kentucky currently has an outstanding federal UI loan balance of $505,732,622. Failure by the state to repay its 2020–2021 federal UI loan balance by November 10, 2022, will result in a 0.3% federal unemployment insurance (FUTA) credit reduction.

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