Unemployment Compensation Tax Rate at Historic Lows Due to 2012 Gordner Legislation

(HARRISBURG) – Businesses across Pennsylvania will save hundreds of millions of dollars in Unemployment Compensation (UC) tax payments in 2020 and temporarily unemployed workers will have substantial protection, according to Senator John R. Gordner (R-27).

“I introduced legislation in late 2011 to try to implement a long-term solution to the solvency of the UC system in Pennsylvania,” said Senator Gordner.  “The end result was the bipartisan passage of Act 60 of 2012, which eliminated our debt to the federal Unemployment Trust Fund, saving millions in interest payments for businesses, and provided important systematic changes that help to ensure the continued financial health of the system.”

Act 60 authorized a state bond issuance that would be used to pay off federal UC loans of over $3 billion that were borrowed to cover benefits for the unemployed during the recession that had just preceded it.  By paying off these federal loans, businesses were able to save approximately $57 million, at that time, because the bond rate was lower than the federal interest rate. 

To pay off the bonds, businesses were assessed a 1.1% UC tax rate interest factor on top of their required payments.  The bonds were paid off as of January 1, 2020 and the interest factor has been dropped.

“With the elimination of the interest factor, the UC tax rate paid by employers will be at its lowest level since 1979,” added Senator Gordner.  “Therefore, Pennsylvania businesses will see significant additional savings of about $552 million in 2020.”

“The Great Recession put the state’s UC Fund in financial crisis, threatening this important program and forcing us to borrow billions from the federal government,” said PA Chamber President and CEO Gene Barr.  “Senator Gordner played a pivotal role in leading the legislative effort to address this issue and was a key architect in the development of Act 60 of 2012.  The PA Chamber was proud to work with a bipartisan coalition of lawmakers and the Corbett administration to shore up this critical safety net and refinance the federal loan, which employers were still responsible for paying off but under more favorable terms. We are pleased employers – who pay some of the highest unemployment compensation taxes in the country – can start off the New Year with a lower UC tax rate.”

With these funding changes, along with the other systemic changes contained in Act 60, the UC Trust Fund reached 181% solvency in July of 2019.  This is its highest level in nearly 20 years.

For more information about the UC system in Pennsylvania, visit www.uc.pa.gov.

 

CONTACT:  Mike Stephens (717) 787-8928