Nebraska DOL Update: Change in Taxable Wage Base for Category 20 Rated Employers

In 2019, the Nebraska legislature enacted LB 428 which added language to the Nebraska Employment Security Law. The major change for businesses in the tax year beginning January 1, 2020, is an increase in the Nebraska Unemployment Tax (UI Tax) taxable wage base for those employers with a tax category of 20 from the current $9,000 per employee to $24,000 per employee. The tax rate on category 20 employers will remain at 5.4%. The taxable wage base for categories 1 through 19 will remain unchanged at $9,000. The purpose of this legislation was to re-establish a balance between unemployment taxes paid by category 20 employers and benefits paid to category 20 workers drawing unemployment benefits.

The experience rating and resulting tax categories for existing employers in 2020 will be determined in November based on the employer’s reserve balance as of October 31, 2019, divided by the average taxable payroll for the two, three or four consecutive preceding tax rating periods. Non-construction employers with less than 2 preceding four-quarter periods are not eligible for an experience rating and will receive the non-construction new employer category of 12.

Employers can be assigned to a category 20 rate in any of three different ways:

  1. A new construction company without the required prior experience will automatically be assigned this category,
  2. An employer who is delinquent with their quarterly reports, or
  3. An employer carrying a negative reserve balance – this can occur over time as a result of departed employees drawing upon unemployment reserves which outpace the company’s annual UI tax contributions

An employer with delinquent tax returns when the rates are calculated in November can still submit the delinquent returns prior to December 31st, at which time a revised rate will be issued. If an employer is assigned a category 20 rating as a result of a negative reserve balance, they may have the option to move to category 19 by making a voluntary contribution. Employers will be notified on or about December 10th of their proposed category via a letter from the Department of Labor. At that time, they will also be notified of their eligibility to make a voluntary contribution to move up to the next category, and the amount required to do so. Employers will have until January 10th, 2020 to make this voluntary contribution. Employers with unresolved delinquent tax returns will not be eligible to make voluntary contributions. Although a voluntary contribution is not required, if eligible, it may be to the employer’s advantage based on the unemployment tax savings it would produce.

If you should have any questions or require assistance with reviewing your 2020 assigned unemployment tax category, please contact your tax professionals at HBE and we would be happy to assist you.

Additional information can be obtained from the Nebraska Department of Labor’s UI Tax website.