Employers in line for unemployment payroll tax cut
Oregon businesses will have a lower payroll tax rate for the state unemployment trust fund in 2022.
The Employment Department has announced that the average rate will drop from 2.26% this year to 1.97% starting Jan. 1, a move from schedule 4 to schedule 3.
The change was made possible by 2021 state legislation (House Bill 3389), which will enable the trust fund to continued to be replenished from the downturn stemming from the coronavirus pandemic. Employers pay into the fund, from which regular unemployment benefits are drawn for 26 weeks of payments to laid-off workers. Employees do not pay into the fund.
Congress also approved several rounds of federal pandemic benefits, including self-employed and gig workers who had never qualified for regular benefits. But those benefits ended around Labor Day. These do not affect the state fund.
The state bill was negotiated by both parties and signed by Gov. Kate Brown on July 27. It will save employers an estimated $2.2 billion over a decade.
Oregon, unlike other states, did not borrow from the federal government to pay unemployment benefits during the 2007-10 recession. The state does not anticipate borrowing as a result of pandemic recession. Borrowing by states must be repaid, and states pass along those costs to employers in the form of higher taxes.
Notices of 2022 tax rates will go out to employers starting Nov. 15.
Oregon's schedules are designed to provide reserves to cover at least 18 months during an economic downturn. The schedules reduce taxes during a downturn and increase during a recovery.
Employers are assigned a tax rate within the annual schedule based on their "experience rating," which hinges on the number of former employees who go on to draw benefits. Normally, when a significant number of employees are paid off, an employer's rating goes up and its unemployment payroll taxes go up the following year.
The 2021 legislation still allows replenishment of the trust fund, but it does these other things to lessen the effects on employers:
• The look-back period for the fund is extended from 10 to 20 years, and it now omits 2020 and 2021 (high-usage years for many employers) from the calculations. Without the changes, the state agency would have had to incorporate 2020 and 2021 into its calculations of trust fund targets for the future. This change enabled the agency's shift from schedule 4 to 3 for 2022.
• Experience ratings of employers for 2020, set before the onset of the pandemic and downturn, will shape their payroll tax rates for 2022, 2023 and 2024. If the agency used 2021 ratings, their tax rates would be far higher in most cases.
• Some employers will be able to defer up to one-third of their 2021 payroll tax liability until June 30, 2022, if they meet specific requirements — namely, keeping current on payments. No penalties or interest will be charged on those deferred amounts. Some employers may receive full or partial forgiveness of their deferrable liability, based on how much their unemployment payroll tax rate increased from 2020 to 2021.
You count on us to stay informed and we depend on you to fund our efforts. Quality local journalism takes time and money. Please support us to protect the future of community journalism.