The COVID-19 pandemic revealed the shortcomings of not being prepared for the unexpected. Prior to the COVID-19 pandemic, as of January 1, 2020, New York State’s Unemployment Insurance (UI) Trust Fund had a balance of $2.85 billion. This was already below the recommended standard set by the U.S. Department of Labor. The increased claims, which occurred as a result of the pandemic, quickly depleted the NY state UI Trust Fund.
Many New York residents were laid off which caused a historic rise in the number of unemployment claims. From the fourth quarter of 2019 to the second quarter of 2020, regular state UI benefits paid increased from $530 million to $6.5 billion. This was an increase of 1,124%. The increase caused NY to borrow funds from the federal government to pay those claims. As of September 2nd, 2021, NY owes the federal government $9 billion, which is nearly double what was owed during the Great Recession.
The comptroller, Thomas P. DiNapoli, states that unless the state and federal government takes significant action, it could have an unfortunate effect on businesses and economic recovery. Notably, unemployment insurance rates for NY employers have already risen to the highest level permissible under law, in 2021.
- State UI rates increased to between 2.1% and 9.9%, up from 2020’s range of 0.6% to 7.9%.
- This is between a 26% and 160% growth in employer tax payments in 2021.
UI benefits are paid for with federal and state taxes collected from employers and are determined for each employer based on:
- length of time as a liable employer,
- utilization of UI benefits, and
- the balance of the UI fund.
NY is obligated to pay back the federal government for funds borrowed. If NY is not able to reach a positive UI Trust Fund account balance and does not meet certain federal rules by November 10th of this year, the 2022 employers’ federal UI tax rates will also increase by 0.3% to 0.9%. As long as NY continues to hold a negative account balance, federal UI tax rates will continue to increase by 0.3% each year until the maximum rate of 6% is reached.
NY faces a serious challenge post-pandemic and will need help and additional federal support to not burden businesses with increased state and federal UI tax rates. State comptroller DiNapoli recommends state lawmakers find a plan to relieve employers of the new costs, and also monitor resources in order to avoid the issuance of state debt to repay the UI trust fund outstanding balance. This is yet another challenge state lawmakers face in an attempt to aid businesses dealing with the many hardships resulting from the pandemic.
Our team understands how these changes can impact an organization’s competitive position. The tax professionals have extensive experience in providing many creative tax strategies including leveraging maximum tax credits and deductions available. We aggressively pursue all allowable options available that will benefit our clients. Contact us today!