As the 2021 Tax Rate season begins, ValeU Group has been analyzing the impact the COVID-19 Pandemic is anticipated to have on our clients as well as on the Unemployment Tax industry as a whole.
With the “fiscal” year states(NH, NJ, VT, and TN) beginning to issue their 2020/2021 Tax Rates in the upcoming months, we wanted to provide an overview of the potential Tax Rate increases.
ValeU Group Client Effective Rate
In the chart below, we show the combined State Unemployment Insurance(SUI) Effective Tax Rate for all our ValeU Group clients. The SUI Tax effective rate has declined each of the past three years, however is expected to increase significantly for the upcoming 2021 Tax Year.
ValeU Group Client Tax Cost Per Employee
As with the Client Effective Rate, the combined ValeU Group client SUI Cost Per Employee has also decreased over the past three years and is expected to increase for 2021.
Reasons for Projected Increase
The causes of the projected increase are obviously due to the COVID-19 Pandemic. In almost all states, the 2021 Tax Rates will increase as a result of the depletion in State Unemployment Trust Funds due to the enormous amount of benefits being paid as a result of the COVID-19 Pandemic. We have put together the following chart showing the Estimated State Unemployment Insurance Trust funds as of July 10, 2020 compared to the SUI Trust Funds on April 15, 2020.
While over 30 states originally agreed to not charge employers directly for any COVID-19 related charges, the overwhelming benefits collected have depleted state trust funds resulting in some states looking at adding stipulations to granting employers from the “Relief of Charges”. The depletion of the state trust funds will have an indirect impact on all employers as a result.
In addition, in the states that will charge employers directly for their COVID-19 Related claims, the increase in tax rate could be severe even with only one quarter of charges impacting most 2021 Tax Rates.
2021 Tax Rate Projections
It is important for all employers to be aware of the potential Tax Cost increase most will incur for 2021, and why Rate Projections are critical at this time.
Please contact your Account Executive if you would like further information.