The Tennessee Department of Labor & Workforce Development announced that pursuant to Executive Order 77 issued by Governor Bill Lee on February 26, 2021, COVID-19 unemployment insurance (UI) benefits will be charged to employers starting on March 15, 2021,; with the period that employers were not charged from COVID-19 UI benefits effective March 15, 2020 through March 14, 2021.

A previous announcement had extended the original non-charge provision through September 30, 2020. Originally the Department announced that employers would not be charged for COVID-19 UI benefits retroactively to March 15, 2020 and through July 31, 2020. (EY Tax Alert 2020-1925, 7-29-2020.)

Governor Lee also announced that effective July 3, 2021, the state will end its participation in all federally funded pandemic UI programs.

SUI tax rates remain at lowest level for the first half of 2021

According to the Department's website, employers continue to pay state unemployment insurance (SUI) taxes at the tax rates issued to them in August 2020 for the first half of 2021 because the SUI trust fund balance exceeded $850 million as of December 31, 2020. SUI tax rates range from 0.01% to 10.0% on Table 6, the lowest rate schedule possible, for fiscal year 2021 (July 1, 2020 through June 30, 2021).

Except for new construction employers, which pay at 5.0%, new employers pay at 2.7% for fiscal year 2021. (Form LB-0441, Report to determine status, rev. 8-2020.)

2021 SUI wage base remains at lowest level

The calendar year 2021 SUI taxable wage base remains at $7,000 because the UI trust fund balance exceeded $1 billion as of December 31, 2020.

FY 2022 SUI tax rates will be issued in mid-2021

The balance of Tennessee's unemployment trust fund on June 30 and December 31 of any year determines which one of six Premium Rate Tables will be used to assign nongovernmental employers their premium rates for the following two calendar quarters.

The Form LB-0482, Notice of Employer's Premium Rate, is sent to employers in late August or early September each year, showing the employer's experience as of the previous December 31, the employer's reserve ratio that will be in effect for the third and fourth quarters of the calendar year in which the notice is received and the first and second quarters of the following calendar year, and the employer's premium rate for the third and fourth quarters of the current year.

If there is a rate change effective January 1 of the following year due to a change in the Premium Rate Table (as last occurred for the first and second quarters 2015), employers will receive a notice in January informing them of the change and providing them with their rate for the first two quarters of the new calendar year.

Tennessee will opt out of federal COVID-19 UI benefit programs in July 2021

Tennessee Governor Bill Lee announced the state will end participation in federal pandemic-related UI benefit programs as of the week ending July 3, 2021 and return to its pre-pandemic UI benefit program. Tennessee is one of the more than 20 states that so far has decided to opt out of the federally funded COVID-19 UI programs, citing a workforce shortage now that the states' businesses are reopening.

As a result, the following federal UI benefits will no longer be available:

• Federal Pandemic Unemployment Compensation (FPUC), an additional $300 weekly payment to recipients of unemployment compensation
• Pandemic Unemployment Assistance (PUA), benefits for those who would not usually qualify, such as the self-employed, gig workers, and part-time workers
• Pandemic Emergency Unemployment Compensation (PEUC), an extension of benefits once regular benefits have been exhausted
• Mixed Earner Unemployment Compensation (MEUC), an additional $100 benefit to certain people with mixed earnings

Since October 4, 2020, unemployment claimants in Tennessee have been required to complete three weekly job searches to remain eligible for benefits. (Governor's press release.)

For more information on the transition to normal state UI benefits, go here.

For more information on the Department's response to COVID-19, go here.

Ernst & Young LLP insights

According to the federal Treasury Direct website, as of June 16, 2021, Tennessee has not yet requested the option, if needed, to receive federal unemployment insurance (UI) Title XII advances (UI loans).

The Tennessee Financial Stimulus Accountability Group Report explains, "Tennessee is one of 21 states that has used Coronavirus Relief Fund (CRF) funding to support their trust funds. The 22 states that declined this option are now borrowing funds from the federal government to bolster their trust fund balances. These loans will need to be repaid with interest from increased taxes on employers, an outcome that Tennessee has successfully avoided with this use of the CRF."

Due to monthly transfers of CARES Act funds in 2020 to the Tennessee's UI trust fund totaling $939 million, the balance was $1,149,090,816 as of December 31, 2020. (US Treasury Direct website; Financial Stimulus Accountability Group Report)

Financial Stimulus Accountability Group Report (page 24) estimates that had the transfers of CARES Act funds not occurred, employer SUI taxes would have increased by 300%.

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