States to Decide Stimulus Bill’s Effect on Unemployment Taxes

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The COVID-19 pandemic that has sent the nation’s unemployment rate soaring may eventually—at least in some cases—affect employers’ unemployment insurance tax rates. Just who will be affected, though, remains an open question.

With businesses shutting down or significantly curtailing operations, Congress responded with the $2 trillion stimulus bill dubbed the CARES Act, which was signed into law on March 27. The Act provides for direct payments to individuals, relief for businesses, assistance for state and local governments, as well as other aid.

One major part of the law expands unemployment insurance for the millions thrown out of work by the virus. The law expands eligibility to more people, such as independent contractors and gig workers, and it offers recipients an additional $600 a week for up to 4 months on top of what their state programs pay.

Effect on Taxes

Just what do the unemployment insurance changes mean for employers’ unemployment tax rates? That’s still an unknown according to attorneys who focus on employment matters.

“The effect of the new CARES Act on employers’ unemployment insurance tax rate is yet to be seen,” Brad Williams, an attorney with Holland & Hart LLP in Denver, Colorado, says. “The CARES Act largely funds expanded unemployment insurance benefits with federal dollars, but the effect of increased unemployment insurance benefit payouts on employers’ unemployment insurance tax rates will be decided on a state-by-state basis.”

Williams says some states have announced that unemployment claims related to COVID-19 won’t be charged to employers. Others, though, have acknowledged the increased payouts may mean higher unemployment insurance tax rates. Other states have yet to provide guidance on the issue.

Charles H. Kaplan, an attorney with Hodgson Russ LLP in New York City, points out that federal funds will cover the expansion of unemployment for independent contractors and workers that don’t have sufficient work history or otherwise usually don’t qualify for unemployment, but “how this will affect rates down the road is really unknown,” he says. Read more here…

Source: HR Daily Advisor

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