The Arkansas Senate voted Tuesday to send Gov. Asa Hutchinson a bill that would exempt federal and state unemployment benefits from state income taxes in 2020 and 2021.
The chamber also voted to send legislation to the House aimed at clearing the way for the director of the Division of Workforce Services not to charge employers for claims for unemployment benefits paid in the second quarter of 2020.
In a 35-0 vote, the Senate sent the governor the bill that would exempt unemployment benefits from income taxes in 2020 and 2021 -- Senate Bill 236 by Sen. Jonathan Dismang, R-Searcy -- after the chamber concurred with a House-approved amendment to the bill.
According to the state Department of Finance and Administration, 1099 tax documents from the Department of Workforce Services show that $2.6 billion in unemployment benefits were paid to 281,840 people in the 2020 tax year.
Arkansas' unemployment rate had been around 3%-4% before the start of the covid-19 pandemic. The first official covid-19 case was identified March 11. In April, the unemployment rate hit 10.2% as nearly 100,000 Arkansans lost their jobs as businesses shut down or laid off workers in response to the pandemic.
The finance department projects that the bill would reduce state general revenue in fiscal 2021 by about $50 million. Fiscal 2021 ends June 30.
The department also projects that SB236 would reduce general revenue by at least $3.1 million in fiscal 2022, which starts July 1.
The department's current general revenue forecast projected collecting about $3 million a year in income taxes on unemployment benefits in fiscal 2021 and fiscal 2022. The Legislature made unemployment benefits subject to state income taxes in the 2017 regular legislative session as part of a law that exempted military retirement benefits from the income tax.
In a 35-0 vote, the Senate sent to the House an amended bill that would clear the way for the state not to charge employers for unemployment benefits paid in the second quarter of 2020. That bill is House Bill 1212 by Rep. Jack Ladyman, R-Jonesboro.
Under the bill, the division's director "may" not charge employers for the payment of benefits that started the week ending April 4, 2020, and that resulted from the governor declaring a disaster emergency under the Arkansas Emergency Services Act of 1974 or from a disaster resulting in a state or federal disaster declaration.
In exercising discretion to not charge employer accounts, the Workforce Services director "shall act in a uniform manner with respect to all charges to employers for benefits" resulting from the aforementioned situations under the bill.
If the bill becomes law, the measure would cover the second quarter of 2020 claims that totaled about $212.9 million because of the impact and breadth of the pandemic, Department of Commerce spokeswoman Alisha Curtis said.
Sen. Missy Irvin, R-Mountain View, who is the Senate sponsor of HB1212, said the bill would allow the director of the Division of Workforce Services to adjust the unemployment insurance rates for employers, so "those second quarter numbers don't calculate into the new rates" for this year.
"Those statements have to go out by next week," so that's why she wants the Senate to approve the amended bill on Tuesday, have the House Public Health, Welfare and Labor Committee consider it today and have the House consider sending the bill to the governor "before the declaration of the emergency is over," she said.
"This is really going to be a huge impact particularly on hair salons, bars, restaurants, small businesses that the government ordered shut down, so we want to make sure that their rates that they are paying are not going to be penalized from our actions in government," Irvin said.