Employer Information on Federal and State Unemployment Tax Rate
Trust Fund & Pandemic Borrowing
The Connecticut Unemployment Insurance Trust Fund had a balance of approximately $700 million prior to the COVID-19 pandemic. According to the formula outlined within the Connecticut General Statutes, the Trust Fund needed $1.4 billion to be considered solvent. Due to the impact of the COVID-19 pandemic and the depth of the economic recession, the Trust Fund was depleted in August 2020. As a result, the Connecticut Department of Labor (CTDOL) began borrowing funds from the United States Department of Labor to continue paying state UI benefits. As of November 30, 2022, CTDOL has borrowed approximately $1 billion and has a loan balance due to the US Department of Labor of $76 million.
The Impact of Borrowing on Employer Federal Tax Rates
One of the federal statutory mechanisms for repaying outstanding federal loans is through increased Federal Unemployment Tax Act (FUTA) taxes. Each state that has federal loans outstanding for at least two consecutive years subjects their employers to increased FUTA taxes each year until all loans are paid in full. The payments from FUTA tax increases are applied directly to that state’s outstanding federal loan balance.
As Connecticut has an outstanding loan balance, Connecticut employers will have a FUTA tax increase of 0.3%, applied to payroll paid from January 1, 2022, through December 31, 2022— up to $21 per full-time employee. The calendar year 2022 FUTA tax return payments will be due and payable in January 2023.
Please note that while the IRS will publish a list of FUTA credit reduction states, CTDOL is providing employers and their payroll agents this information in advance of the IRS notice to allow employers to budget for the federal tax increases and minimize retroactive adjustments.
Connecticut Reduced State Tax to Mitigate Federal Increases
To mitigate the impact of the FUTA tax increase to employers, the Connecticut Legislature passed Public Act 22-118, which contains a provision reducing the state unemployment tax rates by 0.2% for calendar year 2023. This state unemployment tax rate reduction lessens the impact of the FUTA tax increase for those that are paying State Unemployment Tax Act (SUTA) in 2023. For full-time employees, the state tax decrease provides more than 100% offset for the federal increase.
Public Act 22-118 creates a temporary reduction of 0.2% in the state’s new employer and fund solvency tax rates for calendar year 2023 only.
All employers (new and existing) will see a 0.2% reduction in their calendar year 2023 tax rate:
- The state’s new employer rate, originally 3.0% for 2023, is reduced to 2.8%.
- The fund solvency tax, originally 1.4% for 2023, is reduced to 1.2%.
State Tax Rates & Impact on Experience Rating
Public Act 21-5
The method of calculating tax rates for tax years beginning on or after January 1, 2022, has been modified by Public Act 21-5 which mitigates the impact of historically high UI claims due to the pandemic. Under the law:
- UI 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 January 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 January 1, 2022.
What is the impact of Public Act 21-5 on my experience rating?
Unemployment benefits paid to your former employees and your taxable wages for experience years ended June 30, 2020 and June 30, 2021, are not used to calculate any employer’s experience rate.
What is the impact of Public Act 21-5 on the state’s new employer rate?
The rate charged to new employers who have not participated in the system long enough to have their own experience rates will be calculated without regard to the benefits paid and the taxable wages reported during calendar years 2020 and 2021.
Interest Payments on Federal Loans
Generally, federal loans carry interest that is paid to USDOL on September 30 of each year in which a loan is outstanding. In response to the global pandemic, Congress passed legislation that waived the interest on UI trust fund loans through September 6, 2021. For Connecticut, interest of approximately $1 million from September 7, 2021, through September 30, 2021, was due September 30, 2021; usually collected through an annual Special Assessment (a supplemental bill that covers accrued interest) that is levied in August on active Connecticut contributory employers.
Recognizing that the pandemic created financial burden on businesses, Governor Lamont authorized the state to pay the interest due on September 30, 2021, thereby eliminating the need for Connecticut employers to pay the Special Assessment last year.
CT Employers: No Interest on Pandemic Trust Fund Borrowing
CTDOL projects that Connecticut will continue to have an outstanding loan balance through 2025, therefore, interest will continue to accrue through September 2026. Governor Lamont has obligated $30M in federal ARPA funds to pay the interest due from September 2022 through September 2026. This commitment will relieve employers of paying interest costs of up to $30M in those years.
Connecticut employers will not be burdened by any special assessments for UI pandemic-related loan interest payments.