States Passing Unemployment Insurance Measures That Affect Payroll Taxes and Filing

Tuesday May 30th, 2017

unemployment-insurance2017 has been a busy year for unemployment insurance compliance, as many states are passing or considering laws related to the UI tax. Laws already passed affect unemployment insurance electronic reporting and payment requirements, as well as tax-rate schedules.

What Is Unemployment Insurance?

Unemployment insurance programs provide individuals with income for a limited period after they become unemployed.

Administration of unemployment insurance laws is coordinated by a federal-state system. State law requires covered employers to pay a State Unemployment Insurance tax on a set amount of each covered employee's wages for the year, known as the SUI wage base. Some rates are set based on than employer’s “experience”—that is, based on how long they’ve been subject to the state’s unemployment law. Employers must pay SUI tax in addition to the Federal Unemployment Tax Act tax.

Although state unemployment insurance programs must conform to federal requirements, each state has a formula it uses to set each employer's particular SUI tax rate, within its overall SUI rate schedule in effect for the year.

Employers must pay particular attention to any UI changes at the state level, as state laws also mandate employer payment and report filing requirements.

State UI Program Changes Already in Place for 2018

Several states have passed UI laws in 2016 that took effect Jan. 1, 2017, while other states have passed laws this year that will go into effect in 2018.

Arkansas is considering a bill that would lower the state’s unemployment-taxable wage base to $10,000 from $12,000, without adjusting the state’s schedule of unemployment tax rates. If passed, it would be effective Jan. 1, 2018.

California’s electronic filing requirement now covers employers with at least 10 employees (it previously covered employers with at least 250 employees), effective Jan. 1, 2017. All California employers are required to file the reports electronically by Jan. 1, 2018.

Also effective on Jan. 1, 2017, state employers with at least 10 employees must pay unemployment tax electronically. All California employers must pay unemployment tax electronically effective Jan. 1, 2018.

Kentucky passed a bill on March 27 that expands the process for establishing an unemployment tax rate for a successor employer, specifically a successor that had not been covered by the state’s unemployment law but acquired all or part of the business of a predecessor employer that had been covered by the state’s unemployment law. The bill (effective starting with tax rates determined for 2018) requires a successor to file an application with the state to establish an unemployment account within 45 days of employing personnel.

North Dakota’s governor signed a bill on March 22 requiring employers with at least 25 employees to electronically file UI reports. The bill also expands the unemployment tax electronic payment requirement to all employers and other entities paying unemployment tax. Currently, electronic payment is in effect only for entities that pay unemployment tax on behalf of multiple employers. The law is effective Jan. 1, 2018.

In Pennsylvania, all employers in the state were required to file unemployment tax and wage reports electronically prior to 2017 but this is the first full year that an electronic payment requirement applies for some employers in the state.

South Dakota signed a law that causes the state to have two unemployment tax-rate schedules with which experienced-employer rates could be determined, starting with rates for 2018. Both possible tax-rate schedules in 2018 will have a lower maximum rate than the 2017 schedule. Starting with 2018, the schedule in effect is to be based on the state's average high-cost multiplier ratio as of June 30 of the previous year.

Wyoming passed a law allowing employers delinquent in paying unemployment tax or filing unemployment tax and wage reports to avoid assessment of a penalty tax of 2 percent (in some circumstances). The law is effective July 1, 2017.

With so many states passing UI tax laws, others are likely to follow suit. Employers need to keep up with the changing tax laws and make sure to adhere to any that apply to their employees.