State plan gives Oregon employers payroll tax relief
Many Oregon businesses will see smaller increases in their unemployment payroll taxes, and even forgiveness of some amounts, as a result of a bill now headed to Gov. Kate Brown.
House Bill 3389 was repassed by the House on a 56-0 vote Wednesday, June 23, after it cleared the Senate on a 25-4 vote the previous day. There was no debate in either chamber.
The sole Senate amendment was to add $500,000 for 17 short-term positions to incorporate the changes into the Employment Department's computer modernization project. The first phase of the project, which starts in July, will include collection of payroll taxes that employers pay into the state unemployment trust fund. That phase is scheduled to be complete in early 2023.
The bill also sets the experience rating for businesses for 2022, 2023 and 2024 — used to determine tax rates — at 2020 levels, which were determined before the coronavirus pandemic resulted in a steep economic downturn a year ago.
Many businesses closed or curtailed their operations as a result of government-ordered shutdowns intended to curb the spread of the COVID-19 coronavirus in public places.
In December, the Employment Department announced that payroll tax rates for 2021 would go up based on a shift to a different schedule. The agency also said employer experience ratings would be adjusted to reflect employee layoffs and usage of unemployment benefits from the state trust fund — a move affecting thousands of businesses.
Five lawmakers from both parties took part in a group seeking ways to ease the payroll tax burden on businesses yet maintain the solvency of the state unemployment trust fund. They got technical help from David Gerstenfeld, the department's acting director for almost a year, and agency staff.
The bill is expected to result in savings of $2.4 billion to Oregon businesses over the next nine years, while it rebuilds the trust fund to $4.8 billion by the end of the 2023-25 state budget cycle.
The bill does these things:
• Businesses can defer payment of up to one-third of their 2021 payroll taxes until June 2022 if their tax rate went up by half a percentage point.
• If the tax rate went up between 1 and 1.5 percentage point, a business could be eligible for forgiveness of 50% of the deferred amount, and if the rate went up between 1.5 and 2 percentage points, forgiveness of 75% of the deferred amount. But businesses would be eligible for partial forgiveness only if they filed wage reports and paid the rest of their taxes on time in 2021, and are current on their accounts with the Employment Department.
• Employer experience ratings for 2020, which were set before the onset of the pandemic, would be the basis for payroll tax rates in 2022, 2023 and 2024. It would exclude 2021.
• The Employment Department would base its payroll tax collections for the state trust fund on a 20-year horizon, instead of the current 10 years, and the target would be about 10% lower. The state trust fund was at $5 billion at the start of the pandemic; it is about $3.7 billion now. The fund is expected to dip to $3.5 billion in mid-2023, at the end of the 2021-23 budget period, before rising back to $4.8 billion two years later. A legislative report says the fund should approach $8 billion by the end of the 2027-29 budget cycle.
The agency has paid out more than $9.8 billion in benefits during the past year, but much of it was from federal funds.
Oregon was among the few states that did not borrow from the federal government to pay unemployment benefits during the Great Recession a decade ago. Gerstenfeld said he does not anticipate this time that the state will have to borrow. Employers in states that borrow repay the costs and interest through higher payroll taxes.
The Legislative Revenue Office estimates that based on current schedules, payroll tax collections are projected to be $291 million less in the 2021-23 cycle, $650 million less in 2023-25, and $840 million in 2025-27.
The bill got endorsements from the Oregon State Chamber of Commerce, Oregon Restaurant and Lodging Association, Oregon Business & Industry and National Federation of Independent Business/Oregon.
Lawmakers who took part of writing the bill were Reps. Paul Holvey, D-Eugene, Daniel Bonham, R-The Dalles, and John Lively, D-Springfield, and Sens. Chuck Riley, D-Hillsboro, and Bill Hansell, R-Athena.
NOTE: Updates with latest Employment Department total in benefit payments since the onset of the coronavirus pandemic in March 2020.
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