The first quarter state UI contributions have been received for the most part, enabling states to increase state UI trust fund account balances, and pay off or pay down unemployment trust fund account loan balances. For states with outstanding loan balances there remains an amount of interest to be paid that is due on September 30, 2022. See https://www.treasurydirect.gov/govt/reports/tfmp/tfmp_advactivitiessched.htm
Interest Payment Due
This payment of interest is a requirement of federal administrative funding for the state unemployment program and a requirement for employers in the state to receive the full FUTA offset credit for which they are otherwise entitled. It must be paid. The interest payment under federal law must also be paid with funds other than state UI contributions from employers.
CARES and ARPA funds may be used to pay this interest, and it may be included in state budgets for payment from state funds. We have inquired with state workforce agencies about state plans for payment of this interest. In the past, some states have imposed employer surtaxes to pay this interest. As of this writing, only New York appears to be considering a state employer surtax to fund the payment of interest.
New York State deferred three-fourths of the interest due for Fiscal Year 2021 and is required to pay one-third of the remaining interest on or before September 30th for each of the three succeeding calendar years and no interest accrues on the outstanding interest balance under Title XII Section 1202(b)(3)(C) of the Social Security Act. Applications for delays or deferrals of interest payments must be filed by July 1, 2022. See https://www.ecfr.gov/current/title-20/chapter-V/part-606/subpart-E
Loan Pay Off to Avoid FUTA increase (offset credit reduction) for 2022
States that had outstanding Title XII loan balances as of January 1, 2021, and January 1, 2022, are at risk of triggering a FUTA offset credit reduction for 2022 of 0.3 (approximately $21 per employee), but some of the remaining states are planning to pay off their balances by November 10th to avoid the FUTA tax increase for 2022.
As of May 24th, Colorado, Connecticut, and Illinois show remaining loan balances, but legislation has been passed in Colorado to pay the outstanding amount down by $600 million in ARPA funds. Colorado may also use alternative financing to eliminate the balance by November 10th. Connecticut and Illinois have a history of using alternative financing to pay off balances, and Massachusetts recently enacted bond authority to provide the option of using bonds to eliminate loan balances.
Minnesota, New Jersey, and Pennsylvania currently show no outstanding loan balances but have also requested authorization to receive advances to pay unemployment compensation in the next three months. As state UI contribution revenue declines for the 2nd and 3rd quarter there may be a need to cover loan balances that arise because of benefit payout increases before November 10th.
California and New York are the least likely states at this point to pay off their outstanding Title XII loan balances by November 10th . Employers in those states are the most likely to be subject to a FUTA offset credit reduction for 2022.
We are tracking the UI trust fund status in each state and providing consulting assistance to assure that policy makers are aware of the options available to avoid sharp increases in FUTA rates and/or state surcharges. We expect the US Department of Labor to provide a status report on these questions at our National UI Issues conference in Tampa June 29th to July 1st.
Doug
Douglas J. Holmes, President, UWC Inc., holmesd@uwcstrategy.org