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Recently enacted Oregon HB 3389 reduces the impact of COVID-19 unemployment insurance (UI) benefits on employer state unemployment insurance (SUI) tax rates, codifies the program that allows employers to defer payment of their SUI contributions and offers forgiveness of SUI contribution deferrals to employers who experienced significant SUI tax rate increases in 2021.

Future SUI tax rates to be based on pre-pandemic employer experience

Department representatives confirmed that, except for workshare benefits for which the state is being reimbursed in 2020, Oregon is one of the few states that charged employer SUI accounts with regular state COVID-19 UI benefits. As a result, employers saw a direct impact of the UI benefits paid during 2020 on their SUI tax rates and that trend would have continued for the next several years because Oregon's SUI tax rates are computed by directly comparing the previous three fiscal years of UI benefits against the same period of taxable wages. (Department FAQs, Telephone conversations, Oregon Employment Department Employer Services representatives.)

Now, HB 3389 requires that SUI tax rates for calendar years 2022 through 2024 be computed using the same employer experience that was used to determine the SUI tax for calendar year 2020 — the period before the COVID-19 emergency began.

HB 3389 also extends the lookback period used to determine the UI trust fund solvency level from 10 years to 20 years, provides that calendar years 2020 and 2021 will be omitted from the lookback period, and makes other changes designed to permanently lower the UI trust fund balance, statewide tax schedule, and employer SUI tax rates.

The 2021 SUI tax rates range from 1.2% to 5.4% on Rate Schedule IV, up from 0.7% to 5.4% on Rate Schedule II for 2020 and 0.9% to 5.4% on Rate Schedule III for 2019. The Oregon Employment Department expects that Rate Schedule IV will also be in effect for calendar years 2022 through 2024 with a reduction to Rate Schedule III for calendar year 2025.

The Oregon Employment Department estimates that without the enactment of HB 3389, the SUI tax rate schedules for calendar years 2023 through 2025 would have been two schedules higher. (EY Tax Alert 2021-0450, 2-26-2021; Unemployment Insurance Trust Fund Forecast Summary June 2021.)

Legislation codifies deferral option and provides for forgiveness of deferred amounts under certain circumstances

The Department previously announced the availability of a payment plan for SUI contributions that gives employers more time to pay a portion of their 2021 SUI taxes without interest and penalty. The payment plan is available to employers affected by COVID-19 and that had their assigned 2021 SUI rates increase by 0.5% or more over 2020. Eligible employers in good payment standing prior to the start of the COVID-19 emergency must have agreed to pay two-thirds of their 2021 SUI taxes up front and remit the remaining amount at intervals of no less frequently than monthly, with the total of the deferred amount paid by June 30, 2022. Employers must continue to timely file their quarterly SUI tax returns. (EY Tax Alert 2021-0450, 2-26-2021.)

HB 3389 now codifies the deferral plan while also allowing certain employers to receive up to 100% forgiveness of the 2021 SUI contribution deferral based on how much their SUI tax rate increased from 2020 to 2021.

Specifically, HB 3389 states the following:

• Only those employers that saw a 0.5% to 1.0% increase from 2020 to 2021 are eligible for the deferral.
• Employers that saw their 2021 tax rate increase by more than 1.0% but not by more than 1.5% are eligible for 50% forgiveness of the amount deferred.
• Employers that saw their 2021 tax rate increase by more than 1.5% but not more than 2.0% are eligible for 75% forgiveness of the amount deferred.
• Employers that saw their 2021 tax rate increase by more than 2.0% are eligible for 100% forgiveness of the amount deferred.

Employers must meet all the following conditions to be eligible for SUI tax deferral and forgiveness:

• As of January 1, 2021, the employer must have paid all outstanding SUI tax contributions and related liabilities, including those under an approved payment plan.
• Employers must file all required SUI tax returns on a timely basis.
• Employers must timely pay all 2021 SUI taxes that are not deferred or forgiven.

Deferral and forgiveness are only available for SUI taxes. Other payroll taxes, such as withholding tax, statewide transit, workers' benefit fund, and lane transit or tri-met taxes are not included in the relief plan. The payment plan request form is available here.Eligible employers may complete the form and email a copy to: oed_covid19_abatementrelief@oregon.gov.

According to information posted to the Department's website, there is no application for the forgiveness plan, it is available to all eligible employers subject to SUI taxes. The Department will contact employers throughout the 2021 tax year with updates on eligibility status or requirements. The Department will begin the process of tax forgiveness when final reports and payments are received for the 2021 SUI tax year.

Employers will continue to receive notices regarding the deferred portion of their 2021 SUI taxes and may disregard them, provided the employers continue to meet the eligibility requirement for filing SUI tax returns and pay the two-thirds of their SUI contributions on time. Failure to file and pay timely will make an employer ineligible for SUI contribution deferrals and forgiveness. The Department will mail delinquent employers a written determination notifying them that they are no longer eligible due to noncompliance. All deferred SUI tax, including accrued penalties and interest, will become payable within 30 days from the notice.

Federal unemployment insurance loans

The Department continues to project that the state will not need to borrow from the federal government to continue to pay UI benefits to unemployed workers. The state's UI trust fund balance was $4.1 billion as of June 21, 2021. It is expected to reach a low point of $3.6 billion in the first quarter of 2022 and then increase due to declining benefit payments and a temporary increase in employer contributions. (Unemployment Insurance Trust Fund Forecast Summary June 2021.)

Ernst & Young LLP insights

Oregon law provides for eight SUI rate schedules, with the lowest being Rate Schedule I and the highest Rate Schedule VIII. Oregon's rate schedules are designed to provide adequate reserves to cover 18 months of a recession. (ORS Section 657.462; Oregon Employment Department website.) It is expected that HB 3389 will provide an estimated $115 million in interest-free loans to employers until June 30, 2022 and an estimated $32 million in employer tax deferral forgiveness. (Unemployment Insurance Trust Fund Forecast Summary June 2021.)

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