Home » The Bottom Line: Bill to reduce employer UI taxes heads to the Governor

The Bottom Line: Bill to reduce employer UI taxes heads to the Governor

by Charles Aull

Lawmakers gave final passage to legislation that will save Kentucky employers an estimated $370 million in unemployment insurance taxes. House Bill 144, sponsored by Representative Russell Webber, passed the Senate earlier this month with amendments. The House concurred with those amendments and sent the bill to the Governor this afternoon.

House Bill 144 freezes the rate schedule that is used to set employer UI taxes. Because of the unprecedented number of unemployment claims in 2020 and numerous business closures in response to government orders and safety recommendations, Kentucky’s unemployment insurance trust fund was depleted during the height of the pandemic. The health of the UI trust fund is a critical factor in determining the tax rates that employers pay to provide benefits to unemployed workers.

When the trust fund’s balance is low, a schedule with higher rates is used. Conversely, when the balance is high, a schedule with lower rates is used. Prior to the pandemic, employers paid taxes under Schedule A, the second-lowest rate schedule. The drop in the trust fund’s health in 2020 put employers on Schedule E in 2021, the highest rate schedule.

Fortunately, lawmakers passed legislation in 2021 freezing the rate schedule at Schedule A for both 2021 and 2022. The Governor, however, line-item vetoed 2022 out of the bill, which necessitated corrective legislation in the 2022 legislative session.

House Bill 144 is projected to save employers roughly $130 million, staving off a $70 per covered employee tax increase this year.

In addition, the Senate added to the bill an appropriation of $242 million in federal relief dollars to the unemployment insurance trust fund. These dollars will restore the trust fund nearly to its pre-pandemic levels, which will help keep employer UI taxes competitive and help ensure trust fund solvency.

According to the Tax Foundation, Kentucky’s trust fund has been considered insolvent under federal standards since 1974. Thanks to House Bill 144, employers will now be able to build on this appropriation and bring the trust fund closer to federal solvency levels. The House budget bill had originally included an appropriation of federal relief dollars for the UI trust fund.

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