In all jurisdictions, except Alaska and the Virgin Islands (effective January 1, 2021), an employer's state unemployment insurance (SUI) tax rate can rise based on the unemployment insurance (UI) benefits paid to its laid-off workers. That is why the jobless rate can be a strong indicator of the future trajectory of SUI tax rates.

Because of the COVID-19 emergency, the jobless rate rose in all jurisdictions in 2020. The average US jobless rate was 3.7% in April 2019 compared to 13.3% in May 2020, with some individual jurisdictions experiencing a jobless rate in May 2020 as high as 25.3% (Nevada).

To assist unemployed workers during the COVID-19 emergency, Congress passed a series of laws that, through September 6, 2021, directly fund expansions and increases to unemployment insurance benefits through various programs including Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), Federal Pandemic Unemployment Compensation (FPUC) and the Mixed Earners Unemployment Compensation (MEUC). Because these programs are federally funded, they have no impact on an employer's SUI tax rate. (See EY Tax Alert 2021-0869.)

These federal COVID-19 UI benefits do not apply to all workers and periods of unemployment. Consequently, when regular (unfunded) UI benefits are paid to workers as a result of the COVID-19 emergency they are paid from the jurisdictions' UI trust funds and can be reflected in employers' SUI tax rates.

To cushion businesses from the financial impact of COVID-19 regular UI benefits, federal law provides that effective March 18, 2020, and through September 6, 2021, jurisdictions have the flexibility of determining whether unemployment insurance benefits that are not federally funded will be charged to employer accounts for experience rating purposes. Jurisdictions are also encouraged to consider how these costs are fairly distributed to employers.

If states choose to provide noncharging relief to reimbursable employers (i.e., governmental and nonprofit employers), the same noncharging relief must also be provided to contributory (i.e., experienced rated) employers.

States are not allowed to relieve an employer account of UI benefit charges if the employer, or agent of the employer: (1) is at fault for failing to respond timely or adequately to the state's request for information relating to a UI benefits claim that was subsequently overpaid and (2) has established a pattern of failing to respond timely or adequately to UI benefit claim notices.

State inconsistency in charging employer accounts for regular UI benefits

How jurisdictions have been approaching the charging of regular UI benefits to the accounts of experience-rated employers vary considerably.

See the heat map on the following page for details as of May 26, 2021.

Ernst & Young LLP insights

How a jurisdiction deals with regular COVID-19 UI benefits can have a direct impact on current and

future SUI contribution rates. With SUI tax costs rising significantly in many jurisdictions, it is important that employers take these steps to potentially lower the impact.

• Understand the jurisdiction's rules for charging regular UI COVID-19 benefits to your SUI account
• Timely protest where possible UI benefits that are improperly charged to your SUI account
• Work with your employment tax advisor to identify jurisdictional provisions that have the potential of lowering your future SUI tax rates

For more information on COVID-19 state payroll and employment tax developments see our special report.

States that will or won't charge employer accounts with regular COVID-19 UI benefits

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EY Payroll News Flash