[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Notices]
[Pages 41729-41731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17036]


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DEPARTMENT OF LABOR

Employment and Training Administration


Federal-State Unemployment Compensation Program: Unemployment 
Insurance Program Letter Interpreting Federal Unemployment Insurance 
Law

    The Employment and Training Administration interprets Federal law 
requirements pertaining to unemployment compensation (UC) as part of 
its role in the administration of the Federal-State UC program. These 
interpretations are issued in Unemployment Insurance Program Letters 
(UIPLs) to the State Employment Security Agencies. The UIPL described 
below is published in the Federal Register in order to inform the 
public.

UIPL 25-00

    UIPL 25-00 advises State agencies of two provisions of the Ticket 
to Work and Work Incentives Improvement Act of 1999, Public Law 106-
170, which affect the Federal-State Unemployment Compensation program.
    Section 405 of Public Law 106-170 permits, but does not require, 
States to allow employers to submit annual wage reports--as opposed to 
quarterly reports, as required prior to enactment of Public Law 106-
170--with respect to certain domestic service employment. This 
directive informs States that they may, at their option, permit the 
annual reporting of wages from domestic service employers. The 
directive informs States of the definition of domestic service 
employers used by the Internal Revenue Service as it applies to 
reporting of wages. It also discusses the implications for experience 
rating if States decide to permit annual reporting.
    Section 506 of Public Law 106-170 extended the exclusion from the 
FUTA definition of wages for employer-provided educational assistance 
under Section 127 of the Internal Revenue Code for undergraduate 
courses from May 31, 2000 to December 31, 2001. This directive informs 
States of this change in the expiration date.


[[Page 41730]]


    Dated: June 29, 2000.
Raymond Bramucci,
Assistant Secretary of Labor.

U.S. Department of Labor

Employment and Training Administration Washington, D.C. 20210

CLASSIFICATION: UI
CORRESPONDENCE SYMBOL: TEUL
DATE: May 19, 2000.

DIRECTIVE: UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 25-00
TO: ALL STATE EMPLOYMENT SECURITY AGENCIES
FROM: GRACE KILBANE, Administrator, Office of Workforce Security
SUBJECT: The Ticket to Work and Work Incentives Improvement Act of 
1999--Provisions Affecting the Federal-State UC Program
RESCISSIONS: None
EXPIRATION DATE: Continuing

    1. Purpose. To advise State agencies of the provisions of the 
Ticket to Work and Work Incentives Improvement Act of 1999, P.L. 
106-170, which affect the Federal-State Unemployment Compensation 
(UC) program.
    2. References. Sections 405 and 506 of P.L. 106-170; Sections 
303(f) and 1137 of the Social Security Act (SSA); Sections 
3303(a)(1) and 3306(b)(13) of the Federal Unemployment Tax Act 
(FUTA); Section 127 of the Internal Revenue Code (IRC); Section 
3510, IRC; The Social Security Domestic Employment Reform Act of 
1994 (P.L. 103-387); Unemployment Insurance Program Letter (UIPL) 
29-83; UIPL 29-83, Change 1.
    3. Background. On December 17, 1999, the President signed into 
law the Ticket to Work and Work Incentives Improvement Act of 1999 
(the Ticket to Work Act), P.L. 106-170, which contains two 
provisions affecting the UC program:
    <bullet> States may now permit employers to submit annual wage 
reports with respect to certain domestic service employment. Prior 
to the enactment of the Act, Federal law required wage data for such 
employment to be reported on a quarterly basis.
    <bullet> The exclusion from the FUTA definition of wages for 
employer-provided educational assistance under Section 127, IRC, was 
extended for undergraduate courses from May 31, 2000 to December 31, 
2001.
    These amendments are discussed in detail below.
    4. Section 405, Annual Filing of Wage Reports by Domestic 
Employers.
    a. In general. The Social Security Domestic Employment Reform 
Act of 1994, Pub. L. 103-387, amended Section 3510, IRC, so that 
domestic service employers were no longer required to file the 
annual FUTA return or quarterly returns regarding Social Security 
and Medicare taxes. Instead, domestic service employers could file 
such returns for Federal tax purposes at the same time as the filing 
of their personal income tax returns.
    This change to annual reporting for Federal purposes did not 
change the requirement that wage reports be submitted quarterly to 
States. This quarterly wage report requirement is found in Section 
303(f), SSA, which makes operation of an income and eligibility 
verification system in accordance with Section 1137, SSA, a 
condition for the receipt of UC administrative grants. Specifically, 
Section 1137(a)(3), SSA, requires that a State must have in effect 
an income and eligibility verification system under which--
    employers * * * in such State are required, effective September 
30, 1988, to make quarterly wage reports to a State agency (which 
may be the agency administering the State's unemployment 
compensation law) * * *.
    Section 405 of the Ticket to Work Act amended Section 
1137(a)(3), SSA, by adding the following new exception to the 
quarterly reporting requirement--
    in the case of wage reports with respect to domestic service 
employment, a State may permit employers (as so defined) that make 
returns with respect to such employment on a calendar year basis 
pursuant to section 3510 of the Internal Revenue Code of 1986 to 
make such reports on an annual basis.
    As a result of this change, States may, at their option, permit 
annual wage reporting of domestic service employment by employers 
making returns under Section 3510, IRC. (Section 3510, IRC, permits 
returns with respect to domestic service employment taxes to be made 
on a calendar year rather than a quarterly basis.) This amendment 
applies only to domestic service employers.
    Because the amendments to the SSA refer to Section 3510, IRC, 
the Internal Revenue Service (IRS) has authority for determining 
what constitutes domestic service. IRS guidance is found in the 
instructions for Schedule H, which refers to individuals performing 
domestic service as ``household employees.'' The Schedule H for tax 
year 1999 gives the following examples of household employees: 
Babysitters, caretakers, cleaning people, drivers, health aides, 
housekeepers, nannies, private nurses, and yard workers.
    States electing to use annual wage reporting are not required to 
grant annual reporting status to all domestic service employers. 
States may be more restrictive and offer the annual reporting option 
only to certain domestic service employers. For example, a State 
could permit annual reporting only for services by nannies while 
making all other domestic services subject to a quarterly reporting 
basis.
    States also may condition approval of annual filing status on a 
domestic service employer's compliance with safeguards or other 
conditions required by State law. For example, a State may require 
domestic service employers to file ``change reports'' indicating 
when wages are increased or decreased, or when a domestic employee 
is hired or separated. States may also limit annual reporting to 
domestic service employers who timely pay contributions or make 
reports.
    b. Experience Rating. States that choose to permit annual 
reporting must ensure that domestic service employers are not 
treated differently from other employers for experience rating 
purposes. A domestic service employer may not report wage 
information or pay contributions with respect to the calendar year 
until April 15 of the following year. However, all other employers 
would report wage information and make payments throughout the 
calendar year. As a result, if a State's computation date for a tax 
year is July 1, information would be available up to the computation 
date with respect to non-domestic service employers, but it would 
not be available up to the computation date for domestic service 
employers, simply because it had not yet been reported or because 
contributions had not yet been paid. As a result, the non-domestic 
service employer might have its rate based on current information, 
while the domestic service employer would have its rate based on 
older information, simply because State law provides for two 
different sets of dates for submitting wage data or paying 
contributions.
    Section 3303(a)(1), FUTA, provides, as a condition of receipt of 
the additional credit by employers in a State, that ``no reduced 
rate of contributions * * * is permitted to a person (or group of 
persons) * * * except on the basis of his (or their) experience with 
respect to unemployment or other factors bearing a direct relation 
to unemployment risk during not less than the three consecutive 
years immediately preceding the computation date.'' The Department 
of Labor interprets this section to require that the ``experience

[[Page 41731]]

of all employers subject to contributions under a State law must be 
measured by the same factor throughout the same period of time.'' 
This interpretation is referred to as the ``uniform method'' 
requirement. See UIPLs 29-83 (56 FR 54891 (1991)) and 29-83, Change 
1 (56 FR 54896 (1991)).
    A ``uniform method'' issue is raised if a State has different 
criteria for including wage and payment data for one group of 
employers than another group. This will occur if a State grants one 
group of employers a different filing and payment status than 
others. States may avoid ``uniform method'' issues through a variety 
of means. As they do with other employers where current information 
is missing, States may provide estimated tax rates which are subject 
to recomputation once the necessary data has been received. 
Alternatively, States may delay mailing tax rate notices to domestic 
service employers filing annually until the necessary information 
has been obtained.
    c. Effective date. Under Section 405 of the Ticket to Work Act, 
this amendment applies to wage reports required to be submitted on 
and after the date of enactment. The Ticket to Work Act was 
effective on the signing date, December 17, 1999.
    5. Section 506, Employer-Provided Educational Assistance. 
Section 3306(b)(13), FUTA, excludes from the definition of wages 
``any payment made, or benefit furnished, to or for the benefit of 
an employee if at the time of such payment or such furnishing it is 
reasonable to believe that the employee will be able to exclude such 
payment or benefit from income under section 127 or 129.'' Under 
Section 127, IRC, employer-paid educational expenses are excludable 
from the gross income and wages of an employee if provided under an 
educational assistance plan. The exclusion for such employer-
provided educational assistance expired with respect to graduate 
courses beginning after June 30, 1996. For undergraduate courses, 
the exclusion from gross income for employer-provided educational 
assistance previously had been scheduled to expire with respect to 
courses beginning after May 31, 2000. Section 506 of the Ticket to 
Work Act, entitled Employer-Provided Educational Assistance, amended 
the IRC, to extend the expiration date for employer-provided 
educational assistance for undergraduate courses. Due to the 
extension, the expiration of the exclusion is now with respect to 
courses beginning after December 31, 2001. Thus, the FUTA definition 
of wages does not exclude employer-provided educational assistance 
for undergraduate courses beginning after December 31, 2001.
    6. Action Required. State Administrators should provide this 
information to the appropriate staff.
    7. Inquiries. Inquiries should be directed to the appropriate 
Regional Office.

[FR Doc. 00-17036 Filed 7-5-00; 8:45 am]
BILLING CODE 4510-30-M