What Effect Does the CARES Act Have on Employers’ Unemployment Tax Rates and Payments?
By Sheila Gladstone, Sarah Glaser, and Emily Linn, Lloyd Gosselink Rochelle & Townsend, P.C.
Because the CARES Act’s unemployment expansion provisions are federally funded, current guidance indicates there will be minimal impact on employers’ unemployment insurance (“UI”) tax rates and payments. Reimbursing employers (as opposed to taxed employers) may see a larger change if they have a large number of employees apply for unemployment; however, the CARES Act includes a provision to reimburse half of these costs. The Texas Workforce Commission has indicated that there will be no chargeback to any Texas employers for claims filed due to COVID19.
Generally speaking, UI tax rates are calculated for taxed government employers as a group rate in accordance with Chapter 204, Subchapter F of the Texas Unemployment Compensation Act. UI tax rates for taxed government employers are determined by how much all government employers have withdrawn from the Unemployment Compensation Trust Fund in benefit payments to their former employees as compared to the amount of taxes that they paid. All taxed government employers have the same rate in a given year. These rates do not apply to government employers who have elected to be reimbursing employers rather than taxed employers.
The CARES Act expands the unemployment benefits to which former employees in Texas would normally be entitled by creating a mechanism through which the federal government transfers money to the state that covers the total amount of additional assistance provided, as well as any additional administrative costs. This means that any cost born by the Texas Workforce Commission to administer the expanded unemployment and actual additional unemployment benefits paid out by virtue of the CARES Act are covered by the federal government, and should not have an effect on employer tax rates. Additionally, the Texas Workforce Commission stated that there will be no chargeback to any Texas employers for claims filed due to COVID-19.
Section 2103 of the Act establishes a scheme by which reimbursing employers (rather than taxed employers) will be reimbursed for half of the costs they incur to pay for unemployment benefits through December 31, 2020. The federal government will provide funds to the state to reimburse employers. There is little detail in this section; details and regulations will be forthcoming from the Department of Labor and the Internal Revenue Service.
If you would like additional information or have any questions, please contact one of our Lloyd Gosselink Employment Law Practice Group Attorneys: Sheila Gladstone, Sarah Glaser, and Emily Linn. Please contact Sheila - 512.970.5815, Sarah - 512.221.6585, or Emily - 214.755.9433.