Thursday, February 10, 2022

The UI Fund: Why You Should be Watching

Author: David Woger 

The spotlight always seems to shine on the federal political scene but, with the Minnesota legislature in session, it is time to illuminate what’s happening closer to home. As we (hopefully) round the bend on the Omicron variant and as a return to a “new normal” no longer seems so out of reach, Minnesotans should turn their attention to the current state legislative session. This year, the legislature will tackle many important topics with lasting financial and practical impacts on the business community, including the looming tax base rate increase for the Unemployment Insurance Trust Fund (UI Fund).

With over 1 million Minnesotans applying for unemployment since the start of the pandemic, the stability of the UI Fund has changed drastically. Through the course of the pandemic, the fund shifted from a $1.7 billion positive balance at the beginning of 2020 to its current $1.2 billion deficit. This is in addition to the roughly $1.13 billion dollars owed to the federal government for covering deficits in the UI Fund—though, to put that in perspective, California borrowed $19.5 billion to cover UI deficits!

As a small business owner or entrepreneur, why should you care? In accordance with the 2022 UI rates that the Minnesota Department of Employment and Economic Development (DEED) released last December, Minnesota businesses will see an increase in the state UI rate from .1% to .5% and a state special assessment of 14% to pay off the loan from the federal government.

A consensus to resolve this issue with the surplus exists, given the state’s budget surplus and the support—at least in principle—of both Republican and Democratic legislators. The state House of Representatives and Senate are currently debating ideas such as using a portion of the state’s surplus along with available funds from the American Recovery Plan Act to replenish the state’s UI Fund. Other proposals include paying off the borrowed funds from the federal government with available surplus funds and replenishing the UI Fund through a UI Tax base rate hike from .1% to .4%, with the idea that additional surplus funds can be better used to target small businesses and workers.

As you move forward in 2022 with budgeting and planning here are some important dates to keep in mind:
  • The first payments under the new tax rates are due April 15th (same as always).
  • DEED has given the legislature a deadline of March 15th to pass legislation that would affect the quarterly rates.

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