The COVID-19 pandemic caused unemployment to skyrocket in Colorado, and state employment levels have not yet been restored to pre-pandemic rates. Unfortunately, this may have a serious financial impact on many employers over the next few years due to federal unemployment insurance rate increases which will kick in starting January 2022.
At Premier Employer Services, we want to make sure you’re up to date on the details of this rate increase, as well as how it will impact you. The following information will provide a basic overview, but we’re happy to discuss this with you in greater detail during a free consultation.
Colorado’s Unemployment Insurance Trust Fund was established to ensure there is enough money available to fund all unemployment benefits claims. Unfortunately, this fund wasn’t sufficient to handle the increased demands associated with the COVID-19 pandemic. The record levels of Colorado unemployment claims in 2020 depleted the resources in this trust fund, forcing the state to rely on federal loans to pay out all of the claims that were filed.
Colorado is one of 19 states currently making use of these federal loans. At the moment, the state is borrowing roughly $100 million in federal loans each month, and the unemployment insurance program will continue to rely on this funding until the Unemployment Insurance Trust Fund is able to restore a positive balance. Considering the fact that the demand for unemployment benefits remains higher than normal, it is likely that Colorado will need the financial support of these federal loans for the foreseeable future.
The Federal Unemployment Tax Act (FUTA) has established a tax rate schedule in order to ensure each state’s Trust Fund has the resources to pay for the benefits claims that have been filed. Currently, the FUTA tax rate is 6% on the first $7,000 in wages a business pays for each employee every year. However, this rate is currently reduced by 5.4% once the business files their Employer’s Annual FUTA Tax Return (Form 940). This tax credit reduction effectively reduces the FUTA tax rate to 0.6%.
When a state has a negative balance on federal unemployment loans for two consecutive years and fails to repay the full amount of these loans by November 10th of the second year, the state’s FUTA tax credit rate will be lowered until the loan has been paid off. As a result, employers will pay a higher unemployment insurance rate while Colorado is in debt to the federal government for these loans.
Colorado is continuing to raise the taxable wage base. Currently, it is $13,600 and it will rise to $17,000 on January 1, 2022. It will continue increasing in the following years:
Colorado is currently in debt to the federal government by $1.014 billion, and that number continues to grow. Therefore, Colorado will lose its FUTA reduction credit and employers will begin to pay a higher tax starting in 2022. Currently, all Colorado employers pay FUTA at 0.6%. In January 2022, this rate goes up to 0.9%, or $63 per employee. In 2023, it will increase to 1.2%, and it will rise again in 2024 to 1.5%.
Employers will also be required to pay a solvency surcharge starting January 1, 2023. This amount is based on each individual employer’s layoff history (i.e., experience rating). The surcharge will continue through at least 2025 and could go through the end of 2026 if the recovery isn’t strong.
Due to the impact these rate increases will have on your company’s finances, it’s crucial that you stay on top of these changes as they occur. At Premier Employer Services, we offer comprehensive HR compliance services, and our team will make sure you pay the correct FUTA tax rate as these hikes kick in over the next few years.
When you work with Premier Employer Services, you’ll benefit from our exclusive Elevated Engagement Plus Approach™, which has been designed with a focus on helping you create a more successful and inspired organization. As part of this unique approach, our team will work closely with you to identify your specific organizational goals. We’ll then create a customized program to help you succeed. This program will encompass many important aspects of running your business, from employee engagement to HR consulting.
Contact us today to schedule a free consultation.
Full PEO Services creating inspired, successful teams and comprehensive employee engagement.
Get Started