As Some States Increase UI Wage Bases, Rates Are Reduced

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By Howard Perlman

About half of the states' unemployment-taxable wage bases for 2016 are higher than the 2015 levels, but most of these states established lower minimum or maximum unemployment tax rates for employers this year to offset the wage base increases.

Increases to states' unemployment-taxable wage bases generally occur because of state code provisions that require annual adjustments based on a state average annual wage or another economic factor, although some states' wage bases increase in predetermined amounts enacted into law. New York's unemployment-taxable wage base, for example, is to annually through 2026 under a schedule of predetermined amounts, and the wage base is to be a percentage of the state average annual wage starting with 2027.

The 13 states with wage base increases of less than $1,000 for 2016 are Colorado, with a wage base of $12,200, up from $11,800 for 2015; Kentucky, $10,200; up from $9,900; Nevada, $28,200, up from $27,800; New Jersey, $32,600, up from $32,000; New Mexico, $24,100, up from $23,400; New York, $10,700, up from $10,500; North Carolina, $22,300, up from $21,700; Oklahoma, $17,500, up from $17,000; Pennsylvania, $9,500, up from $9,000; Rhode Island, $22,000 and a modified base of $23,500 for employers assessed the maximum tax rate, up from $21,200 and $22,700; Utah, $32,200, up from $31,300; Vermont, $16,800, up from $16,400; and Wyoming, $25,500, up from $24,700.

The 10 states with wage base increases of at least $1,000 for 2016 are Alaska, with a wage base of $39,700, up from $38,700 for 2015; Hawaii, $42,200, up from $40,900; Idaho, $37,200, up from $36,000; Iowa, $28,300, up from $27,300; Kansas, $14,000, up from $12,000; Minnesota, $31,000, up from $30,000; Montana, $30,500, up from $29,500; North Dakota, $37,200, up from $35,600; Oregon, $36,900, up from $35,700; and Washington, $44,000, up from $42,100.

Washington's 2016 wage base of $44,000 is the highest unemployment-taxable wage base ever assessed on employers.

The only state that had a decrease in its unemployment-taxable wage base for 2016 was Tennessee. The balance of the state's unemployment trust fund as of Dec. 31, 2015, was just less than $909 million, according to state data. Because the balance was within the range of more than $900 million and up to $1 billion, the state's wage base for 2016 is $8,000, down from $9,000 for 2015, the state Department of Labor and Workforce Development said Jan. 25 in an e-mail to Bloomberg BNA.

Federal records corroborate Tennessee's wage base decrease for 2016. The Treasury Department's transaction records for the Tennessee's unemployment trust fund balance indicated that the closing balance for December 2015 was about $916 million.

Some Rate Changes Offset Bases

Among the 23 states with an increased unemployment-taxable wage base for 2016, more than half are offsetting the increase with a decrease, when including surtaxes, to the minimum or maximum unemployment tax rate for experienced or new employers. However, Kentucky and Pennsylvania's minimum and maximum rates for experienced employers and the minimum and maximum rates for new employers are unchanged for 2016, while those of Nevada and North Dakota increased for 2016.

For Iowa and Kansas, some of these minimum or maximum rates are increasing for 2016 while others are unchanged, and for Wyoming, some of these rates decreased for 2016 while the maximum new-employer tax rate increased. North Carolina's minimum and maximum rates are expected to decrease for 2016 contingent upon the balance of the state's unemployment trust fund March 31. New Jersey and Vermont determine unemployment tax rates for each period from July 1 to June 30, so their increased wage bases are to not be offset by changes to the minimum and maximum employer rates for the first half of 2016.

Forty-six states, the District of Columbia and Puerto Rico determine unemployment tax rates for employers on a calendar-year basis. In addition to New Jersey and Vermont, New Hampshire and Tennessee also do not determine employer rates on a calendar-year basis. For 2016, total unemployment tax rates, including surtaxes, have been determined by 42 states.

Among the 42 states, the minimum experienced-employer rate, maximum experienced-employer rate, minimum new-employer rate and maximum new-employer rate were decreased by far more jurisdictions for 2016 than increased. While the tendency for the decreases arose in part because of increases to wage bases, the trend was strengthened through increased solvency levels of states' unemployment trust funds that have enabled states to adopt more auspicious tax rate tables or schedules for employers.

Of the 42 states, and when including surtaxes, the minimum experienced-employer rate for 2016, in comparison to 2015, was decreased by 16 states and increased by four states. When including surtaxes, the maximum experienced-employer rate was decreased by 13 states and increased by seven states, the minimum new-employer rate was decreased by 20 and increased by three, and the maximum new-employer rate was decreased by 21 and increased by five.

Upcoming State UI Developments

Massachusetts, Mississippi, New York, the District of Columbia and Puerto Rico generally finalize their unemployment tax schedules and unemployment surtaxes for a year by the end of the year's first quarter and are to determine their total unemployment tax rates for 2016 by March 31.

North Carolina will determine whether its reserve-fund surtax is in effect for 2016 based on the balance of its unemployment trust fund March 31. If the balance is at least $1 billion, the surtax will not be in effect.

New Jersey and Vermont by the end of the second quarter are to determine whether there are to be any changes to their minimum or maximum tax rates for experienced or new employer for the period from July 1, 2016, to June 30, 2017.

Tennessee determines new-employer rates for the period from July 1 to June 30 but determines experienced-employer rates semiannually. The state by Jan. 31 is to determine its tax rate table for experienced employers for the first half of 2016.

New Hampshire, which determines its rates on a quarterly basis, did not have changes to its minimum and maximum rates from the fourth quarter of 2015 to the first quarter of 2016. The state is to determine its second-quarter tax rates for 2016 by March 31.

FUTA Credit Reductions for 2016

Of the four jurisdictions for which employers were assessed credit reductions for 2015 under the Federal Unemployment Tax Act, Connecticut likely is to repay its federal unemployment loan before Nov. 10 and avoid credit-reduction status for 2016, while California, Ohio and the U.S. Virgin Islands likely are to have credit-reduction status for this year.

The Connecticut Department of Labor chose to not apply for a waiver from a benefit-cost rate (BCR) add-on credit reduction for 2015 so that additional revenue would be raised through this add-on credit reduction that would help the state repay its federal unemployment loan before Nov. 10 and avoid credit-reduction status for 2016.

The department estimates, with the additional revenue raised through the BCR add-on, that the state will repay its federal unemployment loan by Sept. 30, 2016, causing employers to pay less in total federal unemployment tax for 2015 and 2016 than if Connecticut remained a credit-reduction state for 2016, the department said July 2, 2015. Connecticut employers for 2015 were assessed a general credit reduction of 1.5 percent and a BCR add-on of 0.6 percent, for a total credit reduction of 2.1 percent that was the highest FUTA credit reduction ever assessed.

Employers in California, Ohio and the U.S. Virgin Islands are to be assessed for 2016 a general FUTA credit reduction of 1.8 percent that is to increase their federal unemployment tax costs by up to $126 for each employee. Each jurisdiction is to again have the option of applying with the federal Labor Department for a BCR add-on waiver that would prevent applicability of the add-on for employers for 2016. These jurisdictions's applications for relief from an add-on for 2015 were approved.

No jurisdictions that did not have a credit reduction for 2015 are to have a reduction for 2016.