The unemployment benefits system is funded and upheld by taxes paid into a trust fund by employers in each state. A few states also levy an employee tax but the brunt of the burden is on employers. The trust funds must remain solvent in order to continue paying unemployment benefits to qualifying claimants. The Connecticut Unemployment Trust Fund took quite a hit as a result of the COVID-19 pandemic. Because of this, a Title XII advance was requested resulting in a FUTA Credit Reduction. The advance must be repaid, along with any accruing interest. To help with repayment of this and to assure their fund balance remains solvent in future years, Public Acts 21-200 & 22-67 was passed. According to information on the Connecticut Department of Labor website, it was implemented through a collaborative effort of business and labor. (CT PA 21-200 & 22-67)
Changes to the Connecticut Unemployment Tax and Benefit System
Employers will see changes to the tax and benefit system, along with the inclusion of indexing various tax and benefits measures. It is hoped these measures will promote long-term unemployment insurance trust fund solvency, reduce employer costs, build cost predictability to support employer fiscal planning and stabilize the unemployment insurance benefit payments to unemployed workers.
Changes effective January 1, 2024, will impact employer tax rates and taxable wage base for 2024 and beyond. For example, the 2024 taxable wage base will increase to $25,000 per employee from the previous $15,000 per employee. To help offset this increase in taxes, there will be reduced factors from 2024 through 2027. The state’s minimum tax rate will decrease but the maximum tax rate will increase from 5.4% to 10%, which is a drastic change.
Additional changes to unemployment insurance benefits could also impact employers. While there were a few wins for employers in this area, there were also a few losses as well. For example, a win for the employer relates to the employers’ experience accounts not being charged for benefits paid to a claimant through a voluntary Shared Work program during periods of high unemployment. Severance pay paid to a former employee will now be disqualifying income if the person is receiving it while also claiming unemployment benefits. On the flip side, claimants will now be eligible to receive benefits when receiving accrued vacation pay, if otherwise eligible. And the minimum weekly benefit amount will increase from $15 to $40.
Overall, it may be fiscally responsible for the CT DOL to shore up its trust fund balance but unfortunately for employers, it must be done via the increase in taxes assessed against them. The alternative though, could be additional taxes owed on the Federal Form 940 if the outstanding balance is not paid and the credit reduction grows each year. If CT’s plan accomplishes its goal, once the trust fund balance is replenished, tax rate schedules may be reduced for the future so eventually, employers may see lower taxes in this state.