There has been a lot of discussion over the past few months on how COVID-19 benefits will impact employer’s tax rates going forward. We know that the State Workforce Agencies Trust Funds have been severely impacted by the pandemic and associated job losses in the United States. We know that states need to find ways to replenish those funds and that in the past they have three options:
- They can reduce benefits
- They can increase taxes
- They can borrow money from the Federal government to boost their trust fund balances.
The American Recovery Plan Act has provided a fourth option for states with $350B in emergency funding provided to state, local, territorial, and tribal governments to directly address negative economic impacts of the COVID-19 public health emergency. States can allocate their share of the money into 15 different categories, one of those being deposits to the state UI Trust Funds to restore their trust fund balances to pre-pandemic levels.
Treasury officials estimate that Trust Funds across the US have incurred $93B in losses since before the pandemic began. The challenge for states has been how to refill those required funds to meet the future needs and avoid long-term financial strain on the employers who pay into these Trust Funds through UI Taxes. The U.S. Treasury Department has given states an option by explicitly allowing the use of ARPA funds to replenish their Trust Funds balances back to the level they had on January 27, 2020 or to use those funds to pay back the advances the states may have received under Title XII.
This is potentially good news for employers. If the states elect to use some of the allocated funds to replenish their trust funds or pay back the advances on the Title XII loans, the impact on tax rates can either be minimized or eliminated altogether. Twelve states have enacted legislation to distribute a portion of their ARPA allocation to replenishing the Trust Funds/Title XII Advancements. The exact level of impact will vary from state to state as some are able to allocate sufficient funds to bring their trust fund back to pre-pandemic levels while others can only make a dent in the deficit.
Currently Arizona, Connecticut, Hawaii, Indiana, Kentucky, Louisiana, Maine, Nevada, New Mexico, Utah, Virginia, and Washington have allocated funds to rebuild their Trust Funds or repay the Title XII advances. The states have discretion on where to allocate the ARPA funds allotted to each state and given the wide range of options, we suspect that some states need more time to evaluate and analyze the areas of greatest need.
|AZ||$758.8 million to the Unemployment Trust Fund||Executive||7/29/2021|
|CT||$155 million to the Unemployment Trust Fund||Legislative||7/8/2021|
|HI||$105 million to pay back federal funds for the Unemployment Insurance Trust Fund||Legislative||4/27/2021|
|IN||$500 million for the Unemployment Insurance Trust Fund||Legislative||4/29/2021|
|KY||$575 million to pay off unemployment insurance debts||Legislative||4/6/2021|
|LA||$490 million to the Unemployment Trust Fund Clearing Account. An amount not to exceed $190 million of these funds may be utilized to repay the states federal unemployment insurance loans.||Legislative||7/9/2021|
|ME||$80 million to the Unemployment Compensation Fund (transferred no later than Nov. 30, 2021)||Legislative||8/6/2021|
|NM||$656.6 million to replenish the Unemployment Trust Fund ($460.2 million) and pay back the federal loan ($196.4 million)||Executive||7/27/2021|
|NV||$335 million to repay advances by the Unemployment Compensation Fund||Legislative||4/21/2021|
|UT||$100 million for replenishing the Unemployment Compensation Fund||Legislative||6/4/2021|
|VA||$862 million to the Virginia Employment Commission for deposit to the Unemployment Trust Fund||Legislative||8/12/2021|
|WA||$500 million for the Unemployment Insurance Relief Account||Legislative||5/18/2021|
* SOURCE: National Conference for State Legislatures ARPA State Fiscal Recovery Funds Allocations as of 9/1/2021
Thomas & Company will continue to monitor this fluid situation and will alert employers when executive or legislative changes are made at the state level that could impact your future tax rates. Updates on the states making use of this funding will be posted to this article as they become available so make sure to follow this article for the latest updates.