March 24, 2022
Federal lawmakers propose extending the waiver of state interest charges on federal UI loans
U.S. Senate Majority Whip Dick Durbin and U.S. Representative Danny K. Davis (D-IL) announced that they and other U.S. senators and representatives have introduced legislation that would extend the period that states are not charged for interest on their federal unemployment insurance (UI) loans.
The announcements explain that the purpose of the legislation is to help Illinois (and the other jurisdictions with loan balances) to recover from the COVID-19 emergency without assessing employers for interest charges or diverting state funds that could be used for economic recovery. (Senator Durbin's news release and Representative Davis's news release; S 3760.)
Under the American Rescue Plan Act (ARPA) (P.L. 117-2), interest on federal UI loans starting in 2020 began to accrue as of September 7, 2021 (extended from January 1, 2020, by the FFCRA (P.L. 116-127) and from March 16, 2021, under the Appropriations Act (P.L.116-260).
The proposed legislation would extend the waiver of interest on federal UI loans from the expiration date of September 6, 2021, to September 30, 2022, providing a seamless continuation of the interest waiver through the upcoming federal fiscal year ending date.
States with outstanding loans for fiscal year 2021 were required to pay interest to the federal government for the period of September 7, 2021 through September 30, 2021. Those states that carried a loan balance as of October 1, 2021 and after would be required to pay interest on September 30, 2022 unless the proposed legislation is enacted.
Many states impose additional state UI taxes on employers to recover the interest charged on their federal UI loan balances.
Ernst & Young LLP insights
Just under half of the US jurisdictions started borrowing from the federal government in 2020–2021 when their UI trust funds became insolvent due to the massive payout of UI benefits to individuals affected by COVID-19. Most states repaid their loans by September 6, 2021, to avoid paying federal interest due on the loans as of September 30, 2021.
As of March 15, 2022, the US Department of Treasury showed that nine states and the Virgin Islands continue to have an outstanding federal UI loan balance, currently totaling $40,368,435,820.38. Failure by these states to repay their full loan balance by November 10, 2022 will result in a reduced federal unemployment insurance tax (FUTA) tax credit for calendar year 2022.
The website shows that a net amount of $378,371,979.27 is currently due for the fiscal year ending September 30, 2022. Because federal law does not allow states to pay the federal interest from state UI trust funds, many states have a provision within their UI law that allows for an employer assessment for the payment of interest due on the loans. For example, Massachusetts passed legislation in 2021 that allows the state to assess surcharges on employers to pay the interest due on the state's UI trust fund loans. Minnesota added a federal interest assessment to the SUI tax rate factors for 2021–2022.
See our special report for information on FUTA credit reductions and other impacts on employer state UI costs as a result of the COVID-19 emergency.
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