State Cuts Offset Federal Unemployment Tax Hike

Issues & Policies

Federal unemployment taxes will increase Jan. 1, 2023—but thanks to CBIA’s advocacy efforts during the 2022 General Assembly session, that will be largely offset by a reduction in state unemployment taxes. 

While most states borrowed money from the federal government during the pandemic to shore up their unemployment trust funds, Connecticut remains one of only six states yet to pay back that debt.

While the state takes the loan, Connecticut employers are solely responsible for repaying loans and interest.

As of Nov. 30, the state Department of Labor had borrowed $1 billion from the federal government, with a current loan balance of approximately $76 million—although borrowing continues, as Connecticut’s unemployment trust fund is well below required solvency levels.   

For each year the debt remains unpaid, federal unemployment taxes on employers increase by 0.3%—or about $21 per employee.

This increase goes into effect Jan. 1. 

Federal Relief Funds

Over the last two legislative sessions, CBIA advocated for the use of 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.

During the 2022 legislative session, CBIA pushed for the use of more federal relief funds to address the debt—knowing the impact of FUTA increases on employers, particularly small businesses.

While lawmakers did not allocate enough federal dollars to satisfy the loan balance, the legislature appropriated $40 million to temporarily reduce state unemployment taxes by 0.2%.

In other words, the $40 million reduced the state tax by two-thirds of the scheduled increase in the federal tax.

State Unemployment Tax Rates

New and existing Connecticut employers will see a 0.2% reduction in calendar year 2023 state unemployment tax rates:

  • The state’s new employer rate, originally 3% for 2023, drops to 2.8%
  • The fund solvency tax, originally 1.4% for 2023, drops to 1.2%

If lawmakers do not act in 2023, employers will see additional federal unemployment tax hikes.

While the business community appreciates lawmakers helping avoid unemployment tax hikes, that $40 million was a temporary Band-Aid and not a long-term solution.

Connecticut’s federal unemployment loans will likely not be fully repaid until 2026. If lawmakers do not act in the 2023 session, employers will see an additional 0.3% FUTA increase in January 2024.  

CBIA’s Transform Connecticut policy proposals—supported by almost half the new General Assembly—call for additional unemployment debt relief.

Experience Rates

State lawmakers this year also modified the tax rate calculation method for tax years beginning on or after Jan. 1, 2022 to mitigates the impact of historically high unemployment claims on employer experience rates:

  • Unemployment benefits charged and taxable wages reported for experience years ended June 30, 2020 and June 30, 2021, will not be used in the experience rate calculation for tax years beginning on or after Jan. 1, 2022. 
  • For new employers, statewide benefits paid to claimants and taxable wages reported for calendar years 2020 and 2021 will not be used in the new employer rate calculation for tax years beginning on or after Jan. 1, 2022. 

For more information, contact CBIA’s Eric Gjede (860.480.1784) | @egjede.


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