The United States Treasury has issued an Interim Final Rule that addresses the use of Coronavirus Recovery Funds (“CRF”) provided to state and local governments under the American Rescue Plan Act (“ARPA”). The rule would permit states to deposit those funds into the state unemployment trust funds to restore solvency.
The use of these funds for this purpose would serve two purposes: 1) eliminate outstanding Title XII debt in many states as well as 2) modify the status of trust fund balances that impact future tax rate schedules and solvency fees.
The timing of the deposit of these funds will be important. Should the funds be deposited into the state trust funds before June 30, 2021, that could alter state UI tax rate calculations for calendar year 2022. Additionally, if funds are deposited by September 6, 2021, states would potentially avoid paying interest on Title XII loan principal and even eliminate Title XII debt altogether, which would avoid potential FUTA tax increases that would otherwise trigger on, saving employers in those states a maximum of $21/employee in increased FUTA taxes for 2022.
A list of states with outstanding Title XII loans that might otherwise be subject to FUTA tax increases in 2022 can be found here.
As always, we will continue to monitor this situation and provide updates as they become available. If there are any questions please do not hesitate to contact us or visit our website for the latest news and updates.
