26 U.S.C. § 3303 — Conditions of additional credit allowance

Page 2770 TITLE 26—INTERNAL REVENUE CODE § 3303 ceding sentence, appropriate action with respect to the financing of a State’s unemployment programs means an increase in the State’s unemployment tax rate, an increase in the State’s unemployment tax base, a change in the experience rating formulas, or a com- bination thereof. ‘‘(2) The Secretary of Labor shall promptly prescribe and publish in the Federal Register regulations setting forth the criteria according to which he will determine the requirements of the preceding paragraph. ‘‘(3) Immediately after he makes a determination with respect to any State under paragraph (1), the Sec- retary of Labor shall publish such determination, to- gether with his reasons therefor, in the Federal Reg- ister.’’ § 3303. Conditions of additional credit allowance (a) State standards A taxpayer shall be allowed an additional credit under section 3302(b) with respect to any reduced rate of contributions permitted by a State law, only if the Secretary of Labor finds that under such law— (1) no reduced rate of contributions to a pooled fund or to a partially pooled account is permitted to a person (or group of persons) having individuals in his (or their) employ ex- cept on the basis of his (or their) experience with respect to unemployment or other fac- tors bearing a direct relation to unemploy- ment risk during not less than the 3 consecu- tive years immediately preceding the com- putation date; (2) no reduced rate of contributions to a guaranteed employment account is permitted to a person (or a group of persons) having indi- viduals in his (or their) employ unless— (A) the guaranty of remuneration was ful- filled in the year preceding the computation date; and (B) the balance of such account amounts to not less than 21⁄2 percent of that part of the payroll or payrolls for the 3 years pre- ceding the computation date by which con- tributions to such account were measured; and (C) such contributions were payable to such account with respect to 3 years pre- ceding the computation date; (3) no reduced rate of contributions to a re- serve account is permitted to a person (or group of persons) having individuals in his (or their) employ unless— (A) compensation has been payable from such account throughout the year preceding the computation date, and (B) the balance of such account amounts to not less than five times the largest amount of compensation paid from such ac- count within any 1 of the 3 years preceding such date, and (C) the balance of such account amounts to not less than 21⁄2 percent of that part of the payroll or payrolls for the 3 years preceding such date by which contributions to such ac- count were measured, and (D) such contributions were payable to such account with respect to the 3 years pre- ceding the computation date; and (4) if the taxpayer is a certified professional employer organization (as defined in section 7705) that is treated as the employer under sec- tion 3511, such certified professional employer organization is permitted to collect and remit, in accordance with paragraphs (1), (2), and (3), contributions during the taxable year to the State unemployment fund with respect to a work site employee. For any person (or group of persons) who has (or have) not been subject to the State law for a pe- riod of time sufficient to compute the reduced rates permitted by paragraphs (1), (2), (3), and (4) of this subsection on a 3–year basis (i) the period of time required may be reduced to the amount of time the person (or group of persons) has (or have) had experience under or has (or have) been subject to the State law, whichever is appro- priate, but in no case less than 1 year imme- diately preceding the computation date, or (ii) a reduced rate (not less than 1 percent) may be permitted by the State law on a reasonable basis other than as permitted by paragraph (1), (2), (3), or (4). (b) Certification by the Secretary of Labor with respect to additional credit allowance (1) On October 31 of each calendar year, the Secretary of Labor shall certify to the Secretary of the Treasury the law of each State (certified by the Secretary of Labor as provided in section 3304 for the 12-month period ending on such Oc- tober 31), with respect to which he finds that re- duced rates of contributions were allowable with respect to such 12-month period only in accord- ance with the provisions of subsection (a). (2) If the Secretary of Labor finds that under the law of a single State (certified by the Sec- retary of Labor as provided in section 3304) more than one type of fund or account is maintained, and reduced rates of contributions to more than one type of fund or account were allowable with respect to any 12-month period ending on Octo- ber 31, and one or more of such reduced rates were allowable under conditions not fulfilling the requirements of subsection (a), the Sec- retary of Labor shall, on such October 31, certify to the Secretary of the Treasury only those pro- visions of the State law pursuant to which re- duced rates of contributions were allowable with respect to such 12-month period under condi- tions fulfilling the requirements of subsection (a), and shall, in connection therewith, des- ignate the kind of fund or account, as defined in subsection (c), established by the provisions so certified. If the Secretary of Labor finds that a part of any reduced rate of contributions pay- able under such law or under such provisions is required to be paid into one fund or account and a part into another fund or account, the Sec- retary of Labor shall make such certification pursuant to this paragraph as he finds will as- sure the allowance of additional credits only with respect to that part of the reduced rate of contributions which is allowed under provisions which do fulfill the requirements of subsection (a). (3) The Secretary of Labor shall, within 30 days after any State law is submitted to him for such purpose, certify to the State agency his findings with respect to reduced rates of con- tributions to a type of fund or account, as de- fined in subsection (c), which are allowable Page 2771 TITLE 26—INTERNAL REVENUE CODE § 3303 under such State law only in accordance with the provisions of subsection (a). After making such findings, the Secretary of Labor shall not withhold his certification to the Secretary of the Treasury of such State law, or of the provi- sions thereof with respect to which such findings were made, for any 12-month period ending on October 31 pursuant to paragraph (1) or (2) un- less, after reasonable notice and opportunity for hearing to the State agency, the Secretary of Labor finds the State law no longer contains the provisions specified in subsection (a) or the State has, with respect to such 12-month period, failed to comply substantially with any such provision. (c) Definitions As used in this section— (1) Reserve account The term ‘‘reserve account’’ means a sepa- rate account in an unemployment fund, main- tained with respect to a person (or group of persons) having individuals in his (or their) employ, from which account, unless such ac- count is exhausted, is paid all and only com- pensation payable on the basis of services per- formed for such person (or for one or more of the persons comprising the group). (2) Pooled fund The term ‘‘pooled fund’’ means an unem- ployment fund or any part thereof (other than a reserve account or a guaranteed employment account) into which the total contributions of persons contributing thereto are payable, in which all contributions are mingled and undi- vided, and from which compensation is pay- able to all individuals eligible for compensa- tion from such fund. (3) Partially pooled account The term ‘‘partially pooled account’’ means a part of an unemployment fund in which part of the fund all contributions thereto are min- gled and undivided, and from which part of the fund compensation is payable only to individ- uals to whom compensation would be payable from a reserve account or from a guaranteed employment account but for the exhaustion or termination of such reserve account or of such guaranteed employment account. Payments from a reserve account or guaranteed employ- ment account into a partially pooled account shall not be construed to be inconsistent with the provisions of paragraph (1) or (4). (4) Guaranteed employment account The term ‘‘guaranteed employment ac- count’’ means a separate account, in an unem- ployment fund, maintained with respect to a person (or group of persons) having individuals in his (or their) employ who, in accordance with the provisions of the State law or of a plan thereunder approved by the State agency, (A) guarantees in advance at least 30 hours of work, for which remuneration will be paid at not less than stated rates, for each of 40 weeks (or if more, 1 weekly hour may be de- ducted for each added week guaranteed) in a year, to all the individuals who are in his (or their) employ in, and who continue to be available for suitable work in, one or more distinct establishments, except that any such individual’s guaranty may commence after a probationary period (included within the 11 or less consecutive weeks imme- diately following the first week in which the individual renders services), and (B) gives security or assurance, satisfac- tory to the State agency, for the fulfillment of such guaranties, from which account, un- less such account is exhausted or termi- nated, is paid all and only compensation, payable on the basis of services performed for such person (or for one or more of the persons comprising the group), to any such individual whose guaranteed remuneration has not been paid (either pursuant to the guaranty or from the security or assurance provided for the fulfillment of the guaranty), or whose guaranty is not renewed and who is otherwise eligible for compensation under the State law. (5) Year The term ‘‘year’’ means any 12 consecutive calendar months. (6) Balance The term ‘‘balance’’, with respect to a re- serve account or a guaranteed employment ac- count, means the amount standing to the cred- it of the account as of the computation date; except that, if subsequent to January 1, 1940, any moneys have been paid into or credited to such account other than payments thereto by persons having individuals in their employ, such term shall mean the amount in such ac- count as of the computation date less the total of such other moneys paid into or credited to such account subsequent to January 1, 1940. (7) Computation date The term ‘‘computation date’’ means the date, occurring at least once in each calendar year and within 27 weeks prior to the effective date of new rates of contributions, as of which such rates are computed. (8) Reduced rate The term ‘‘reduced rate’’ means a rate of contributions lower than the standard rate ap- plicable under the State law, and the term ‘‘standard rate’’ means the rate on the basis of which variations therefrom are computed. (d) Voluntary contributions A State law may, without being deemed to violate the standards set forth in subsection (a), permit voluntary contributions to be used in the computation of reduced rates if such contribu- tions are paid prior to the expiration of 120 days after the beginning of the year for which such rates are effective. (e) Payments by certain nonprofit organizations A State may, without being deemed to violate the standards set forth in subsection (a), permit an organization (or a group of organizations) de- scribed in section 501(c)(3) which is exempt from income tax under section 501(a) to elect (in lieu of paying contributions) to pay into the State unemployment fund amounts equal to the amounts of compensation attributable under the State law to service performed in the employ of such organization (or group). Page 2772 TITLE 26—INTERNAL REVENUE CODE § 3303 (f) Prohibition on noncharging due to employer fault (1) In general A State law shall be treated as meeting the requirements of subsection (a)(1) only if such law provides that an employer’s account shall not be relieved of charges relating to a pay- ment from the State unemployment fund if the State agency determines that— (A) the payment was made because the em- ployer, or an agent of the employer, was at fault for failing to respond timely or ade- quately to the request of the agency for in- formation relating to the claim for com- pensation; and (B) the employer or agent has established a pattern of failing to respond timely or ade- quately to such requests. (2) State authority to impose stricter standards Nothing in paragraph (1) shall limit the au- thority of a State to provide that an employ- er’s account not be relieved of charges relating to a payment from the State unemployment fund for reasons other than the reasons de- scribed in subparagraphs (A) and (B) of such paragraph, such as after the first instance of a failure to respond timely or adequately to re- quests described in paragraph (1)(A). (Aug. 16, 1954, ch. 736, 68A Stat. 440; Sept. 1, 1954, ch. 1212, § 2, 68 Stat. 1130; Pub. L. 91–373, title I, §§ 104(c), 122(a), 142(c)–(e), Aug. 10, 1970, 84 Stat. 699, 702, 707; Pub. L. 94–455, title XIX, §§ 1903(a)(13), 1906(b)(13)(C), Oct. 4, 1976, 90 Stat. 1809, 1834; Pub. L. 94–566, title I, § 122(a), (b), Oct. 20, 1976, 90 Stat. 2675, 2676; Pub. L. 112–40, title II, § 252(a), Oct. 21, 2011, 125 Stat. 421; Pub. L. 113–295, div. B, title II, § 206(c)(2), Dec. 19, 2014, 128 Stat. 4070.) Editorial Notes AMENDMENTS 2014—Subsec. (a). Pub. L. 113–295, § 206(c)(2)(B), sub- stituted ‘‘paragraphs (1), (2), (3), and (4)’’ for ‘‘para- graphs (1), (2), and (3)’’ and ‘‘paragraph (1), (2), (3), or (4)’’ for ‘‘paragraph (1), (2), or (3)’’ in concluding provi- sions. Subsec. (a)(4). Pub. L. 113–295, § 206(c)(2)(A), added par. (4). 2011—Subsecs. (f), (g). Pub. L. 112–40 added subsec. (f) and struck out former subsecs. (f) and (g) which con- tained transitional provisions enacted by prior amend- ments. 1976—Subsec. (b)(1) to (3). Pub. L. 94–455 substituted reference to Secretary of the Treasury for reference to Secretary and reference to 12–month period for ref- erence to 12 or 10-month period, as the case may be, and struck out reference to (10-month period in the case of Oct. 31, 1972) following provisions relating to 12–month period ending Oct. 31. Subsec. (f). Pub. L. 94–566, § 122(b), substituted ‘‘which elects before April 1, 1972,’’ for ‘‘which elects, when such election first becomes available under the State law,’’. Subsec. (g). Pub. L. 94–566, § 122(a), added subsec. (g). 1970—Subsec. (a). Pub. L. 91–373, § 122(a), added to pro- vision following par. (3) the authorization for the allow- ance of a reduced rate by State law (but not less than 1 percent) on a reasonable basis other than as per- mitted by par. (1), (2), or (3). Subsec. (b). Pub. L. 91–373, § 142(c)–(e), changed the certification date referred to in pars. (1) to (3) from Dec. 31 to Oct. 31, with provision for a 10-month period in the case of Oct. 31, 1972, and, except for Oct. 31, 1972, provided for a 12-month period ending on Oct. 31 each year. Subsecs. (e), (f). Pub. L. 91–373, § 104(c), added subsecs. (e) and (f). 1954—Subsec. (a). Act Sept. 1, 1954, inserted sentence relating to reduced rates for new employers. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 applicable with re- spect to wages for services performed on or after Janu- ary 1 of the first calendar year beginning more than 12 months after Dec. 19, 2014, see section 206(g)(1) of Pub. L. 113–295, set out as a note under section 3302 of this title. EFFECTIVE DATE OF 2011 AMENDMENT Pub. L. 112–40, title II, § 252(b), Oct. 21, 2011, 125 Stat. 422, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section [amending this section] shall apply to erroneous payments established after the end of the 2-year period beginning on the date of the enactment of this Act [Oct. 21, 2011]. ‘‘(2) AUTHORITY.—A State may amend its State law to apply such amendments to erroneous payments estab- lished prior to the end of the period described in para- graph (1).’’ EFFECTIVE DATE OF 1976 AMENDMENTS Pub. L. 94–566, title I, § 122(c), Oct. 20, 1976, 90 Stat. 2676, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall take effect on the date of the enactment of this Act [Oct. 20, 1976]. The amendment made by subsection (b) [amending this section] shall take effect on January 1, 1970.’’ Amendment by section 1903(a)(13) of Pub. L. 94–455 ap- plicable with respect to wages paid after Dec. 31, 1976, see section 1903(d) of Pub. L. 94–455, set out as a note under section 3101 of this title. EFFECTIVE DATE OF 1970 AMENDMENT Amendment by section 104(c) of Pub. L. 91–373 [amending this section] to take effect Jan. 1, 1970, see section 104(d)(1) of Pub. L. 91–373, set out as a note under section 3304 of this title. Pub. L. 91–373, title I, § 122(b), Aug. 10, 1970, 84 Stat. 702, provided that: ‘‘The amendments made by sub- section (a) [amending this section] shall apply with re- spect to taxable years beginning after December 31, 1971.’’ Amendment by section 142(c)–(e) of Pub. L. 91–373 ap- plicable with respect to taxable year 1972 and taxable years thereafter, see section 142(i) of Pub. L. 91–373, set out as a note under section 3302 of this title. EFFECTIVE DATE OF 1954 AMENDMENT Act Sept. 1, 1954, ch. 1212, § 2, 68 Stat. 1130, provided that the amendment made by that section is effective after Dec. 31, 1954. TREATMENT OF CERTAIN CHARITABLE ORGANIZATIONS RETROACTIVELY DETERMINED TO BE DESCRIBED IN SECTION 501(c)(3) OF THIS TITLE Pub. L. 98–21, title V, § 524, Apr. 20, 1983, 97 Stat. 149, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘If— ‘‘(1) an organization did not make an election to make payments (in lieu of contributions) as provided in section 3309(a)(2) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] before April 1, 1972, because such organization, as of such date, was treated as an organization described in section 501(c)(4) of such Code, ‘‘(2) the Internal Revenue Service subsequently de- termined that such organization was described in sec- tion 501(c)(3) of such Code, and Page 2773 TITLE 26—INTERNAL REVENUE CODE § 3304 ‘‘(3) such organization made such an election before the earlier of— ‘‘(A) the date 18 months after such election was first available to it under the State law, or ‘‘(B) January 1, 1984, then [former] section 3303(f) of such Code shall be ap- plied with respect to such organization as if it did not contain the requirement that the election be made be- fore April 1, 1972, and by substituting ‘January 1, 1982’ for ‘January 1, 1969’.’’ § 3304. Approval of State laws (a) Requirements The Secretary of Labor shall approve any State law submitted to him, within 30 days of such submission, which he finds provides that— (1) all compensation is to be paid through public employment offices or such other agen- cies as the Secretary of Labor may approve; (2) no compensation shall be payable with respect to any day of unemployment occurring within 2 years after the first day of the first period with respect to which contributions are required; (3) all money received in the unemployment fund shall (except for refunds of sums erro- neously paid into such fund and except for re- funds paid in accordance with the provisions of section 3305(b)) immediately upon such re- ceipt be paid over to the Secretary of the Treasury to the credit of the Unemployment Trust Fund established by section 904 of the Social Security Act (42 U.S.C. 1104); (4) all money withdrawn from the unemploy- ment fund of the State shall be used solely in the payment of unemployment compensation, exclusive of expenses of administration, and for refunds of sums erroneously paid into such fund and refunds paid in accordance with the provisions of section 3305(b); except that— (A) an amount equal to the amount of em- ployee payments into the unemployment fund of a State may be used in the payment of cash benefits to individuals with respect to their disability, exclusive of expenses of administration; (B) the amounts specified by section 903 (c)(2) or 903(d)(4) of the Social Security Act may, subject to the conditions prescribed in such section, be used for expenses incurred by the State for administration of its unem- ployment compensation law and public em- ployment offices; (C) nothing in this paragraph shall be con- strued to prohibit deducting an amount from unemployment compensation otherwise pay- able to an individual and using the amount so deducted to pay for health insurance, or the withholding of Federal, State, or local individual income tax, if the individual elected to have such deduction made and such deduction was made under a program approved by the Secretary of Labor; (D) amounts shall be deducted from unem- ployment benefits and used to repay over- payments as provided in section 303(g) of the Social Security Act; (E) amounts may be withdrawn for the payment of short-time compensation under a short-time compensation program (as de- fined under section 3306(v)); (F) amounts may be withdrawn for the payment of allowances under a self-employ- ment assistance program (as defined in sec- tion 3306(t)); and (G) with respect to amounts of covered un- employment compensation debt (as defined in section 6402(f)(4)) collected under section 6402(f)— (i) amounts may be deducted to pay any fees authorized under such section; and (ii) the penalties and interest described in section 6402(f)(4)(C) may be transferred to the appropriate State fund into which the State would have deposited such amounts had the person owing the debt paid such amounts directly to the State; (5) compensation shall not be denied in such State to any otherwise eligible individual for refusing to accept new work under any of the following conditions: (A) if the position offered is vacant due di- rectly to a strike, lockout, or other labor dispute; (B) if the wages, hours, or other conditions of the work offered are substantially less fa- vorable to the individual than those pre- vailing for similar work in the locality; (C) if as a condition of being employed the individual would be required to join a com- pany union or to resign from or refrain from joining any bona fide labor organization; (6)(A) compensation is payable on the basis of service to which section 3309(a)(1) applies, in the same amount, on the same terms, and sub- ject to the same conditions as compensation payable on the basis of other service subject to such law; except that— (i) with respect to services in an instruc- tional, research, or principal administrative capacity for an educational institution to which section 3309(a)(1) applies, compensa- tion shall not be payable based on such serv- ices for any week commencing during the period between two successive academic years or terms (or, when an agreement pro- vides instead for a similar period between two regular but not successive terms, during such period) to any individual if such indi- vidual performs such services in the first of such academic years (or terms) and if there is a contract or reasonable assurance that such individual will perform services in any such capacity for any educational institu- tion in the second of such academic years or terms, (ii) with respect to services in any other capacity for an educational institution to which section 3309(a)(1) applies— (I) compensation payable on the basis of such services may be denied to any indi- vidual for any week which commences dur- ing a period between 2 successive academic years or terms if such individual performs such services in the first of such academic years or terms and there is a reasonable assurance that such individual will per- form such services in the second of such academic years or terms, except that (II) if compensation is denied to any in- dividual for any week under subclause (I)