October 11, 2021
New York legislation would relieve employers of paying SUI assessment for the repayment of interest on the state's federal unemployment insurance loan balance
To address the federal interest charges due on the state's current federal unemployment insurance (UI) loan balance, SB 3969 would repeal New York law that allows for employer state unemployment insurance (SUI) assessments to repay the interest paid by the state on its current federal unemployment insurance loan balance.
According to a report issued by the New York State Comptroller (OSC), New York paid federal interest of approximately $3.7 million on its federal UI loan balance on September 30, 2021 and expects it will pay $3.7 million in each of the three following years. The New York Department of Labor (NYDOL) told the OSC that employers are not expected to be charged an SUI assessment for interest paid in 2021 because the state paid this amount using other resources.
According to the OCS report, on January 1, 2020, New York's UI trust fund balance was $2.65 billion, the highest in the state's history, but still below the solvency standard recommended by the U.S. Department of Labor. Due to the historic surge in UI benefit claims at the start of the COVID-19 emergency, the state began in May 2020 to receive federal UI loans to continue to pay regular UI benefits. The OSC reports that the state's regular quarterly UI benefits grew from $530 million in the fourth quarter 2019 to $6.5 billion in the second quarter 2020.
As of October 4, 2021, the U.S. Department of Treasury shows that New York had an outstanding federal UI loan balance of $9.1 billion, down from a high of $10.4 billion at the end of March 2021. According to the OSC report, the current federal UI loan balance is more than double it what was when, due to the financial crisis of 2009, the state received federal UI loans through 2012 with the balance reaching almost $4 billion. The loan balance was not repaid in 2015, causing employers to pay increased federal unemployment insurance (FUTA) taxes for calendar years 2011—2014.
Under the American Rescue Plan Act (ARPA), interest was waived on federal UI loans through September 6, 2021. States that continue to have a federal UI loan balance after September 6, 2021 will see interest start accruing at a rate of 2.2777%. States are not allowed to use regular UI trust fund monies to pay the interest; accordingly, some states recover these federal interest charges from employers through a special surcharge while others use general state funds or seek alternate debt funding to avoid increasing employer SUI taxes.
When New York previously had a federal UI loan balance, employers were required under New York law to pay additional assessments from 2011 through 2015 to recover federal interest payments paid on the federal UI loan.
Legislation relieves employer UI accounts of COVID-19 benefit charges
As we previously reported, SB 1197, enacted in January 2021, provides that regular UI benefits paid in connection with COVID-19 will not be charged to employer accounts for experience rating purposes for the period of March 12, 2020 through December 31, 2021. This relief applies to UI claims that are due to the closure of the employer, a reduction in the employer's workforce due to COVID-19 or a governmental order to close the business due to COVID-19. (EY Tax Alert 2021-0289, 2-08-2021.)
In addition to the enactment of SB 1197, NYDOL Commissioner Roberta Reardon issued an order that retroactive to March 9, 2020, provides that any COVID-19 UI benefits charged to employers' SUI accounts are canceled and will instead be charged against the general account for the entirety of the individual's UI claim. The provisions of the order apply to 100% of benefits attributable to employers liable for contributions and to 50% of benefits attributable to employers liable for payments in lieu of contributions.
EY Payroll News Flash