Senate Panel expands tax break for low-income workers

By Matt Murphy and Michael P. Norton

MARCH 16, 2021…..With an end-of-March deadline looming to pass legislation to stabilize the unemployment insurance system, Senate leaders on Tuesday released a new version of a fast-moving relief bill that would more than double the cost of tax breaks for low-income workers who collected unemployment benefits last year.

The change to the bill, which had been announced jointly by House Speaker Ron Mariano and Senate President Karen Spilka as an “agreement,” could slow down the legislation’s progress as businesses await unemployment insurance rate bills for the first quarter.

Mariano and Spilka said last week that the two Democratic leaders had reached an agreement on legislation that would provide “targeted tax relief to unemployed workers.”

In the bill that passed the House last Thursday, that tax relief took the form of a tax credit equal to 5 percent of unemployment benefit earnings in 2020 for workers under 200 percent of the federal poverty limit. The House bill capped the amount of tax credits that could be offered at $30 million in 2020 and $20 million in 2021, limiting the total cost to the state to $50 million over two years.

The version of the bill released Thursday by the Senate Ways and Means Committee scrapped that framework and instead proposed to allow low-income workers to deduct the first $10,200 in unemployment compensation they received from their total income in 2020 and 2021.

The tax relief program would not be capped for either year, and the committee estimates it will cost $126 million.

Neither Senate Ways and Means Chairman Michael Rodrigues’s office not House Ways and Means Chairman Aaron Michlewitz immediately responded to questions about the change.

The House version of the bill (H 90) cleared that branch last week and the Senate plans to vote Thursday on the Senate Ways and Means draft (S 35), which now carries a total price tag of $350 million.

Lawmakers layered the bill with tax benefits for low-income workers as well as small businesses that have received Paycheck Protection Program loans that were forgiven by the federal government.

The bill also proposes to create a new state program requiring employers to provide emergency paid sick leave to employees for absences related to COVID-19 self-isolation, quarantine or caring for a family member. The Senate bill caps COVID-19 emergency paid sick leave at $850 per week, and creates a $75 million reimbursement fund.

The costs related to the biggest item in the bill – up to $7 billion in special obligation bonds – will be shouldered by businesses and the bill aims to smooth out the costs associated with last year’s historic spike in joblessness. The bill’s architects say those bonds will reduce the amount of federal advances, avoid the need to obtain advances, or repay advances made from the federal unemployment account for fiscal 2020 to 2025.

The Ways and Means Committee approved its proposal on Tuesday and included the state cost estimate in its bill summary.

Lawmakers are trying to wrap up work on the bill in part because the state needs to bill employers soon for first quarter unemployment insurance premiums, which will be going up, but not by as much as employers would face under the current premium schedule.

According to the committee, the state costs in the bill break down as follows: $75 million for paid sick leave; $126 million for unemployment income exclusion from taxes, and $150 million in connection with the making PPP grants exempt from state income taxes mostly for mostly small business owners.

The state is more than a month and a half late in notifying businesses how much they will owe in unemployment insurance contributions for the first three months of the year, and the Department of Unemployment Assistance told employers last week it was prepared to wait until the end of March to see if the Legislature will intervene.

Without legislative action, businesses are facing an average hike in their unemployment insurance premiums of 60 percent.