SB 0855 - Fiscal Note

Fiscal Note - SB 0855 - Withholding of Income Taxes From Unempl. Comp. Benefits

L.R. NO.  2997-01
BILL NO.  Truly Agreed and Finally Passed SB 855
SUBJECT:  Federal Mandate: Employment Security
TYPE:     Original
DATE:     May 8, 1996



                              FISCAL SUMMARY

                    ESTIMATED NET EFFECT ON STATE FUNDS

FUND AFFECTED               FY 1997         FY 1998         FY 1999

None

Total Estimated
Net Effect on All
State Funds                      $0              $0              $0


                   ESTIMATED NET EFFECT ON FEDERAL FUNDS

FUND AFFECTED               FY 1997         FY 1998         FY 1999

Federal
Administrative
Fund                      ($72,500)              $0              $0

Total Estimated
Net Effect on All
Federal Funds             ($72,500)              $0              $0


                    ESTIMATED NET EFFECT ON LOCAL FUNDS

FUND AFFECTED               FY 1997         FY 1998         FY 1999

Local Government                 $0              $0              $0


                              FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue indicate this proposal would have no
fiscal impact to their agency.

Officials of the Department of Labor and Industrial Relations (ESU) state
this issue would be federally mandated according to Public Law 103-465, which
was signed into law on December 8, 1994.  This proposal would allow the state
to withhold federal income taxes from unemployment benefits if the individual
receiving the benefits has elected to have withholdings.

ESU staff state the costs associated with this legislation should be one-time
costs and would be paid from federal administrative funds appropriated for
the unemployment insurance operations.

There would be minimal impact on the UI Trust Fund.

ESU staff state the administrative funds would be spent initially for the
computer programming needed to properly calculate the withholding. This cost
would be estimated to be approximately $15,000.

ESU staff assume to fully inform all unemployment benefit recipients of the
availability of this option, a special mailing to current recipients could be
done.  For mailing 210,000 notices to claimants to advise them of their
option, the cost is estimated to be $57,500.  After the initial mailing, this
option would be explained whenever a new or renewed claim was filed.

The only impact to the UI Trust Fund would be a possible increase in interest
earnings while the withheld funds are retained in the trust fund prior to
transferral to the federal taxing authority.  Because Missouri's maximum
weekly benefit amount is only $175, they do not expect a large number of
claimants to elect withholding and the interest earned would be very minimal.

ESU officials noted that when the state's unemployment insurance laws do not
conform to federal laws, the U. S. Department of Labor can withhold Federal
Unemployment Tax Act (FUTA) credits from the state's employers.  Loss of FUTA
credits would cost Missouri employers more than $700 million annually.  Also,
if a compliance issue is found to exist, the ESU could lose federal
administrative funds of more than $70 million annually.


FISCAL IMPACT - State Government             FY 1997    FY 1998    FY 1999
                                            (10 Mo.)
FEDERAL ADMINISTRATIVE FUND

Cost-Department of Labor and Industrial Relations
   Division of Employment Security (ESU)
   Computer programming and Mail Expense   ($72,500)         $0         $0

ESTIMATED NET EFFECT ON
FEDERAL ADMINISTRATIVE FUND                ($72,500)         $0         $0


FISCAL IMPACT  - Local Government            FY 1997    FY 1998    FY 1999
                                            (10 Mo.)

                                                   0          0          0


DESCRIPTION

 This act is designed to fulfill a federal mandate regarding the withholding
of federal income taxes from unemployment benefits paid after December 31,
1996.  Beginning on January 1, 1997, anyone who files an unemployment
compensation claim shall be advised that it is subject to federal, state and
local taxes.  There are requirements for estimated tax payments and federal
income tax can be withheld from unemployment compensation payments and
withholding status can be changed. Any amounts withheld stay in the
unemployment compensation trust fund until transferred to the appropriate
taxing authority.  The Division of Employment Security must follow all
federal procedures regarding withholding, established by the US Department of
Labor and the IRS.  Before any amount can be withheld for federal income
taxes, all amounts for unemployment compensation overpayment, child support,
food stamp overissuance and any other amounts required under Chapter 288,
RSMo, must first be deducted and withheld.

This legislation is federally mandated, would not duplicate any other program
and would not require additional capital improvements or rental space.


SOURCES OF INFORMATION

Department of Revenue
Department of Labor and Industrial Relations