COVID, has created lingering problems for both states and employers. Twenty-one states have now requested authorization to obtain loans from the federal trust fund account. Which begs the question – how will this be paid back?
More than 25 states have indicated they will protect businesses from a virus-related unemployment insurance (UI) tax hike. However, we do not know how state trust funds will be replenished. Who pays for the drawdown related to businesses that had to permanently close their doors due to COVID? This uncertainty leaves little room for employers to prepare themselves for the next few years.
The trust funds will need to be replenished. If money is borrowed from the federal or state governments, it will need to be paid back. We can speculate on what the various solutions could be, but in the end – the money has to come from somewhere.
The impact of this could cause experience rates to increase, or states will move towards a higher rate schedule. In addition, as trust funds become insolvent, states will need to impose a solvency tax. In an article (found here) published by CNBC, Greg Iacurci explains in greater detail, the intricacies of addressing the depletion of state trust funds.
This a fluid situation. In a problem as complex as this, much depends on individual states and Congress. The links above contain some of the best information that we’ve seen put forward. Regardless of any new developments, the funds will need to be replenished in some way. Lowering your UI tax rate to your industry’s best rate, by state – is still the best option for offsetting some of these costs. In most industries, the difference between the best rate, and the average rate is 5/10 of a percent. This could result in significant savings. Contact us, to find out what the impact would be for your company.