Be on the lookout for notices from tax agencies with changes to unemployment insurance rates and deposit schedules coming in 2022. Of note is Colorado’s increase to the taxable wage base from the current $13,600 to $17,000 in 2022. Passed in July 2020, SB20-207 raises the wage base by $3,400 each year beginning in 2022 for 6 years to reach a final base of $30,600.
The taxable wage base is the portion of each worker’s annual income subject to unemployment insurance (UI) taxes. Each state must have a minimum taxable wage base equal to or greater than the federal wage base of $7,000 in order for their state’s employers to receive credit against federal UI taxes.
Interestingly, the federal wage base hasn’t changed since 1982 and is not adjusted for inflation. The original wage base, established back in the late 1930s, was $3,000. If adjusted for today’s dollars, that $3,000 would be $55,000 today. Compare the federal UI wage base of $7,000 to the social security wage base of $142,800 and you can see why many states, including Colorado, have insolvent Unemployment Trust Funds due to the impact of Covid.
Along with the increase in the wage base, Colorado will also be increasing UI tax rates. Due to the trust fund’s insolvency, the state will be using the highest rate schedule. Tax rates will range from 0.75% to 4.41% for positive-rated employers and from 5.68% to 10.39% for negative-rated employers. While SB20-207 delayed the insolvency surcharge for 2021 and 2022, look for this to be added in 2023.
Do you need help with planning and budgeting for these upcoming increases? Call Momentum Tax & Financial to learn about our affordable services!