Oregon’s Unemployment Compensation Trust Fund (UCTF) is financed by unemployment insurance (UI) tax payments made by employers as part of payroll tax filings. When unemployment claims drain the UCTF to a particular level, employers’ payroll tax rates increase temporarily to replenish the fund. Because of increased unemployment claims resulting from the COVID-19 pandemic, Oregon businesses experienced these increases in their 2021 UI rates, adding another financial stress to an already difficult situation.

On July 27, 2021, Governor Kate Brown signed HB 3389 to provide temporary UI tax relief while also preserving the long-term stability of the UCTF. According to the Oregon Employment Department (OED), this Unemployment Income (UI) Payroll relief is available to all eligible employers subject to UI taxes, and eligible employers will be enrolled automatically with no application required. Eligibility is determined by the following conditions:

• As of January 1, 2021, the employer must have paid all outstanding UI tax contributions and related liabilities, including those made as part of a payment plan accepted by the director of the OED.
• The employer must file all required 2021 payroll reports on time.
• The employer must pay on time all 2021 UI tax liabilities that are not deferred.

For 2021, employers who meet these eligibility requirements have the option to pay only 2/3 of their quarterly tax owed at the time the payments are normally due. The remaining 1/3 can be deferred, with remaining deferred amounts due no later than June 30, 2022. It will be important for eligible employers to review any future 2021 payments and work with any third-party payroll provider (if applicable) to review any processes needed to allow for the deferral, if eligible.

In addition, some employers will have their deferral amounts forgiven in part or in full, according to the following scheme:

• UI tax rates that increased by 0.5–1.0 percentage point from 2020 to 2021 will be eligible for deferral only;
• UI tax rates that increased between 1.0 and 1.5 percentage points will be eligible for 50 percent forgiveness on deferred payments;
• UI tax rates that increased between 1.5 and 2.0 percentage points will be eligible for 75 percent forgiveness;
• UI tax rates that increased more than 2.0 percentage points will be eligible for 100 percent forgiveness.

If an employer is eligible for a percentage of forgiveness but pays their quarterly taxes in full each quarter, those employers will be able to receive a credit or refund upon completion of the relief plan after June 2022. The OED has not yet outlined the exact stipulations on how and when they will issue credits or refunds, but more information will be provided by OED to employers once it is finalized.

It should be noted an employer must meet and remain in compliance with ALL of the conditions above. Employers will become ineligible for relief if they file a late report or make a late payment or pay less than 2/3 of the tax bill. The OED will mail a written determination if the employer falls into non-compliance, at which point all deferred and unpaid UI taxes, including accrued penalties and interest, will be payable within 30 days.

Employers should be aware the OED will continue its normal mailing of notices regarding unpaid UI taxes, and these notices will reference the unpaid deferral portion of 2021 UI taxes, but employers may disregard the delinquent payment notices as long as they continue to meet the eligibility requirement listed above.

HB 3389 also allows the UI tax experience rating for tax years 2022 through 2024 to return to the pre-pandemic 2020 UI benefit ratio. The bill extends the look-back period used to determine the UCTF solvency level from 10 years to 20 years. While the 2022-2024 rates will be based on the experience rate prior to the pandemic, employers may see fluctuations in tax rates during those years as a result of standard tax schedule changes.

The OED will be contacting employers throughout the 2021 UI tax year with updates on eligibility status and any further requirements. The Department will begin the process of tax forgiveness once final reports and payments are received for the 2021 UI tax year.

Employers should also note, participating in the deferral portion of the relief plan may mean they cannot access their full Federal Unemployment Tax Act (FUTA) credit for state unemployment tax paid on their IRS Form 940 (Federal Unemployment Tax Return).

If you have questions related to this UI relief, our state and local tax (SALT) professionals are available to assist.  Please contact our SALT Team at SALT@GMCO.com.