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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015

DiNapoli: Unemployment Taxes on Employers Poised To Increase To Repay $9B Owed to Federal Government

September 9, 2021

The historic surge in unemployment claims at the onset of the COVID-19 pandemic rapidly depleted the New York State Unemployment Insurance (UI) Trust Fund, resulting in the state borrowing from the federal government to pay claims. State UI tax rates have already risen to the highest level permissible under law in 2021. Unless the state or federal government takes significant action, federal UI tax rates on employers will also increase in 2022 and beyond, according to a report issued today by State Comptroller Thomas P. DiNapoli.

“The pandemic put many New Yorkers out of work and forced the state to borrow heavily from the federal government to meet their urgent unemployment claims,” DiNapoli said. “The state currently owes Washington $9 billion and the obligation to pay back this money and rebuild the trust fund balance presents a serious challenge for the state and businesses struggling to recover from the pandemic. Action is needed to avoid hiking costs for New York businesses and slowing the state’s economic recovery.”

The pandemic had a crippling effect on some state businesses and their workforce, causing a historic surge in layoffs and claims for UI benefits. 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 – a staggering increase of 1,124%.

New York’s UI trust fund account was not well-positioned to weather the crisis. On January 1, 2020, the balance was $2.65 billion, below the standard recommended by the U.S. Department of Labor. When the pandemic hit, the state began to borrow from the federal government to pay claims in May 2020. As of September 2, 2021, the amount owed to the federal government was $9 billion, down from a high of $10.2 billion at the end of March 2021. The current balance is more than double what was owed during the Great Recession.

Rate Increase

UI benefits are paid for with federal and state taxes collected from employers. State UI tax rates are determined for each employer based on their length of time as a liable employer, utilization of UI benefits by former employees and prior UI tax contributions, and the balance of the UI fund. Rates can grow with increased employee UI claims or a low UI fund balance.

Given the current negative balance in the state unemployment trust fund, 2021 UI rates for New York employers increased to a range of 2.1% to 9.9% of taxable payroll, up from 2020 rates that ranged from 0.6% to 7.9%. As a result, employer tax payments grew between 26% and 160% in 2021. Until the balance in the state account returns to a positive level, employers will continue to make state UI contributions between 2.1% and 9.9%.

If New York continues to hold a negative balance on Jan. 1, 2022 and does not meet certain federal rules by Nov. 10 of this year, employers’ federal tax rates will also go up from 0.6 % to 0.9% for 2022. The federal tax rates will continue to grow by 0.3% each year until the maximum rate of 6% is hit for as long as New York continues to hold an outstanding balance.

DiNapoli recommended state lawmakers advocate for additional federal support that would relieve employers of new costs that could hamper recovery efforts; monitor existing pandemic relief programs to determine if resources may be available to repay federal advances; and avoid the issuance of state debt to repay the outstanding balance.

Unemployment Insurance Trust Fund: Challenges Ahead

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