Federal Unemployment Tax Hike Averted

Connecticut employers will not face a federal unemployment tax increase in 2024, with taxes now scheduled to fall for most businesses.

The Lamont administration announced this week that it paid off the $1.2 billion the state borrowed from the federal government to pay pandemic-related unemployment claims.

That will save businesses—solely responsible for funding the state’s Unemployment Trust Fund—an estimated $30 million in taxes next year.

The federal unemployment tax rate is currently $63 per full-time employee and would have increased to $84 had the state not satisfied the loan.

The minimum federal tax rate for employers will now fall to $42 for tax year 2023.

“It was a promise we made,” Gov. Ned Lamont told the Connecticut Mirror. “I didn’t want small business to have a backdoor increase in taxes.”

CBIA Advocacy

CBIA president and CEO Chris DiPentima welcomed the news, noting this marks the second year that unemployment taxes either fell or remained unchanged.

“While the federal unemployment tax increased this year, CBIA’s advocacy efforts during the 2022 legislative session led to that being offset by a cut in the state tax,” DiPentima said.

“And we look forward to long-overdue unemployment system reforms—another CBIA policy priority—taking effect in January so the trust fund can finally be restored to solvency.

“Those reforms should, in the long term, end the constant threat of unemployment tax hikes and allow employers to invest that capital in areas that will grow jobs and the economy.”

2024 marks the second consecutive year #unemployment taxes fell or were unchanged. While FUTA increased this year, @CBIANews' advocacy efforts saw that offset by a state tax cut. Overdue reforms take effect in January and will push the system to solvency. https://t.co/7SORQRGlcN

— Chris DiPentima (@ChrisDipentima) November 9, 2023

During the 2021 and 2022 legislative sessions, CBIA advocated for using federal pandemic relief funds to avoid potentially crippling FUTA increases and special assessments on employers.

Lawmakers appropriated $155 million during the 2021 session, directing $125 million to the loan balance with $30 million used to prepay interest and avoid assessments.

In 2022, the legislature appropriated $40 million to temporarily reduce state unemployment taxes by 0.2%, mitigating the federal increase.

Reforms

The historic bipartisan reforms to the state’s unemployment system that lawmakers approved in 2021 take effect Jan. 1, 2024.

Those reforms were designed to achieve long-term solvency for the state’s troubled unemployment fund, further weakened by the surge in claims during the pandemic.

Seventy-three percent of businesses will see unemployment tax savings, while employers that use the system most will bear more responsibility for funding the system—while still being partially subsidized in some cases.

Effective Jan. 1, 2024, the taxable wage base that is a component of an employer’s unemployment taxes will increase from the first $15,000 per employee to the first $25,000.

To offset some of that increase, the state will reduce the charged rate by predetermined factors through 2027.

The minimum and maximum experience rates will be set at 0.1% and 10% respectively and the maximum fund solvency tax rate will be 1%, down from the current 1.4%.

The 2024 tax rate will be based on the 2022 and 2023 benefit charge and TWB totals.

The maximum fund solvency tax rate is further reduced to 0.5% during years in which an economic recession has been declared.

Eligibility, Benefit Changes

The 2021 reforms also overhauled eligibility requirements and benefits:

• Benefits paid to a claimant through the state’s voluntary Shared Work program during periods of high unemployment shall not be charged to experience rated base period employers.
• A claimant’s receipt of severance pay will now result in disqualification from receiving UI benefits for the period of time covered by the payment. 
• A claimant’s receipt of accrued vacation pay at the time of dismissal will not disqualify the claimant from receiving UI benefits, if otherwise eligible. However, vacation pay issued to a claimant during a shutdown period will result in a disqualification or reduction in the UI benefits. 
• The minimum weekly UI benefit payment will increase from $15 to $40 and will be subsequently indexed annually due to inflation. However, the minimum benefit will revert to $15 when the federal government provides a fully federally funded supplement to the individual’s weekly benefit amount.
• The minimum base period earnings requirement increases from $600 to $1,600 and will be subsequently indexed annually to inflation.
• However, the minimum base period earnings requirement will revert to $600 when the federal government provides a fully federally funded supplement to the individual’s weekly benefit amount.
• Each day of absence without either good cause or notice to the employer constitutes a “separate instance” of willful misconduct.
• The maximum UI benefit rate will be frozen during the four years from October 2024 through October 2028