References: Chapter V, Section 5, and Chapter XI, Section 1, ET Handbook No. 391. Background: Recently, the Office of Personnel Management issued official 1995 pay tables (copies of Tables A and B attached) authorized by the President reflecting new pay raises for GS employees. Table A shows the new salaries for GS employees incorporating a 2.00% increase effective January 1995. Table B shows the new salaries for GS employees incorporating the 2.00% increase and a locality payment of 5.48% for the locality pay area of Washington- Baltimore, DC-MD-VA-WV (Net Increase 3.22%) effective January 1995. The locality rates of pay are considered basic pay for retirement, life insurance, premium pay, and severance pay purposes and for advances in pay. They are also used to compute worker's compensation payments and lump-sum payments for accrued and accumulated annual leave. They are NOT considered basic pay for other pay administration purposes. All eligible white-collar workers automatically get the 2% national pay raise. But many civil servants who already are paid higher rates because they are in hard-to-fill jobs (such as Grade 2 through 7 clerical workers, scientists and engineers) will not get the 1.22% raise. A few will get part of the locality adjustment. Postal workers and DC government employees do not get either the national or locality raise. Federal and military retirees, whose pensions are linked to inflation, will get a 2.8% cost-of-living adjustment. That adjustment will show up in their April annuity checks. Instructions: SESAs should provide copies of the attached GS Tables to appropriate staff members engaged in UCFE claims activities. Action Required: SESAs should follow the above instructions and provide the attached revised Federal Pay Tables to appropriate staff.

Background.: Beginning with the implementation of the UI QC Program in 1986, SESAs and Regional Offices (RO) received ADP equipment with which to accomplish QC-related tasks. The Digital Equipment Corporation's Pro 380 microcomputers were initially introduced to support these tasks. In 1989, these computers were replaced with Artecon's SUN 3/60 computers. The Artecon computer systems also included a number of peripheral devices, such as modems, terminal servers, tape drives, and printers. During the summer and fall of 1994, the Artecon computers were upgraded to Sun SPARC 10 computers and the Sun 3/60 computer phase-out period was initiated. QC/UIRR Equipment Utilization and Disposition Policy: SESA QC/UIRR equipment is Department of Labor (DOL) purchased equipment or supplies issued to the States and subject to the DOL administrative requirements of 29 CFR 97.32 (equipment) and 29 CFR 97.33 (supplies). The terms "equipment" and "supplies" are defined at 29 CFR 97.3. Most of the peripheral equipment previously used with the SUN 3/60s has been integrated into the new SPARC 10 computer systems. This equipment includes Telebit modems, Exabyte 8mm tape drives, Kennedy 9-track tape drives, and Xylogics Annex Box terminal servers. Maintenance and Repair.: Maintenance for the SPARC computer systems is covered by a contract agreement between the UI NO and Edge Systems, Inc. Equipment covered by this agreement only includes the SPARC 10 computers and all internal devices, the serial port controller board, the 16" color monitor, the Hewlett Packard (HP) 4Si laser printers, and the new SUN keyboard. The Exabyte 8mm external tape drives, which are required for performing daily back-ups, the Telebit modems, which are required for communications, and the American Power Conversion (APC) uninterruptable power supply (UPS) units, which protect the SPARC computers and Sun monitors from power surges, are not covered under the Edge agreement. However, the NO will ship replacement equipment for these components on an as needed basis. Please note that Edge Systems, Inc. is shipping new UPS units to those SESAs that do not already have an American Power Conversion IPS 1250 unit. Also, the SESA System Administrators should report any problems with the SPARC 10 computer systems to the UI Hotline for resolution. Warranty Equipment.: Other peripheral equipment integrated into the SPARC 10 computer systems includes HP color deskjet printers, Epson dot matrix printers, QUME X-terminals, VT220-compatible terminals, the Kennedy 9-track tape drives and Annex Box terminal servers. The HP deskjet and Epson printers have been ordered, but not yet shipped to the SESAs. Also, some SESAs are still waiting to receive QUME X- terminals--these have also been ordered. Presently, the QUME X-terminal is covered for five years under the manufacturers' "Return to Factory" (RTF) warranty and the Epson and HP deskjet printers are covered under a one year RTF warranty. If service is required on any computer equipment, the SESAs must first contact the NO Hotline at 1-800-473-0188. If the equipment is still under warranty, a Return Merchandise Authorization (RMA) number will be assigned by the Hotline to the defective unit and SESAs will return the component with its identifying RMA to the manufacturer for repair. Please note that all defective equipment must be shipped back in the original shipping containers, so please keep the original packing boxes. A replacement unit will be shipped directly to the SESA from the NO, and the NO will receive the repaired unit from the manufacturer. As warranties expire, SESAs should either have a maintenance contract implemented covering each component, be willing to pay time and materials to cover repair costs, be willing to pay for replacement equipment, or be prepared to do without the equipment if it breaks down. If there are questions regarding repair coverage for a particular component, please call the UI Hotline. Disposal Instructions.: If a piece of QC/UIRR equipment is no longer needed or breaks down and is no longer wanted, the SESA's computer system administrator should obtain serial numbers for that equipment and report the nature of the concern or malfunction to the NO Hotline for further instructions. Hotline staff will determine if the reported equipment is still under warranty or if NO replacement should take place. If the equipment is not under NO support, the SESA's computer system administrator will need to send an e-mail message to the NO (tonight!fran) requesting a Disposal Authorization Number (DAN) for each piece of UI equipment to be disposed of. The message should contain the make, model and serial number of the equipment. The NO will reply and provide a DAN for each item it authorizes for disposal. The SESA computer system administrator should enter the DAN into the SESA's property records and then dispose of the property in accordance with State laws and procedures. UI Policy on Tracking QC/UIRR Equipment. : The UIS will continue to conduct an annual verification of ADP equipment furnished to the States and ROs for use with QC and other UI activities. On or about March 30 each year the NO will provide each RO with the most current list of equipment that has been provided to each SESA in its Region. The RO should request each State agency to correct its equipment list and furnish the RO with a corrected copy so that the RO can ensure that an updated State inventory verification is provided to the UIS NO by the response date. Transition from SUN 3/60 computers to the SPARC 10s.: All UIS-developed applications have now been ported to the new SPARC computers. Finding replacement parts for failing internal components on the old 3/60 computers has become almost impossible. Also, service technicians are no longer familiar with the 3/60 architecture, and are unable to adequately support the 3/60 computers. For these reasons, as well as budget considerations and in accordance with our plan for discontinuing maintenance, maintenance support for the 3/60s will end on December 31, 1994. Some SESAs may wish to develop some work-arounds as support for the 3/60 computers ends. The older SPSS application software, specifically SPSS graphics, including the mapping functionality, is not available on the SPARC 10 computers. Any custom-designed applications created by the SESAs that are based on the SPSS graphics product will be unavailable to users unless the State continues operating the 3/60 computers. SPSS decided to exclude certain functionality in its latest product and the older versions will not run on the new SPARC computers. To date, the NO has been unable to find a cost-effective replacement product. All of the commercial third party software applications, except UltraCalc, the SPSS X-graphics package, and SunLink, will be removed from the 3/60 computers at the end of December. WordPerfect, Lotus 1-2-3, SPSS, and Informix, were purchased as upgrades on the new SPARC systems, which nullifies the licenses existing on the 3/60s thereby requiring their removal. Only a few SESAs are currently using their Annex Box terminal servers to support attached printers. This print capability is currently only available on the 3/60 computers. The UIS Operations and Support (OPS) group has dedicated staff working on porting the software necessary to provide this printer support on the SPARC computers. It is anticipated that the software will be installed on the SPARC computers in mid-January. For those SESAs that wish to continue using the 3/60 computers for the printer support capability, the NO will accommodate their requests until software is released providing Annex Box terminal server printer support on the SPARC computers. Please remember, however, that maintenance support will not be available if the 3/60 should crash. If this occurs, the Annex Box terminal servers will still support terminals and PCs--but not printers, until the new software is released. The root password for the 3/60 computers will be given to the SESA computer system administrators by the Hotline staff in mid- January, 1995, to coincide with the release of the Annex Box terminal server software. At that time SESAs may request disposal numbers for the 3/60s from the NO. SESAs may elect to keep the 3/60s connected to the new SPARC 10 computers after support has been discontinued. However, the NO reserves the right to have the SESA computer system administrators disconnect the old machine from the SPARC system if it causes any problems. New Printers.: A postscript color printer (the HP 1200C Deskjet) has been ordered for each SESA. The OPS group will begin integration testing on the new printer as soon as testing for the Epson LQ570+ printers has been completed. Both the Epson and HP color printers should be shipped to the SESAs sometime in January, 1995. Action Required.: SESA Administrators are requested to advise staff of the contents of this UIPL.

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Action Required: SESA Administrators are requested to provide the attached Directories to appropriate staff.

References: Chapter IV, Section 6, and Chapter V, Section 1, ET Handbook No. 391. Background: Recently, the Office of Personnel Manage-ment issued official 1995 pay tables authorized by the President reflecting new pay raises for GS employees. Preliminary information was previously provided in UIPL No. 11-95, dated January 5, 1995. Instructions: Replace the attachments to UIPL 11-95 with the attachments provided in this directive. Action Required: SESAs should provide copies of this directive to appropriate staff engaged in UCFE claims activities and other staff who were provided a copy of UIPL 11-95.

References: The Internal Revenue Code of 1986 (IRC), as amended, including the Federal Unemployment Tax Act (FUTA); Title III of the Social Security Act (SSA); Section 702 of P.L. 103-465; Section 301 of P.L. 102-318; 31 U.S.C. Section 6503 as amended by P.L. 101-453; 31 C.F.R. Part 205; and Unemployment Insurance Program Letters (UIPLs) 25-89, 45-89 and 45-92. Background: On December 8, 1994, the President signed into law P.L. 103-465. Although the short title of this law is the "Uruguay Round Agreements Act," it is commonly known as the legislation on "GATT" - the General Agreement on Tariffs and Trade. Under this legislation, States will be required to deduct and withhold Federal income tax from UC if the individual so elects. In addition, States will have the option of withholding State and local income taxes if the individual so elects. This UIPL addresses these new provisions pertaining to income tax withholding. Discussion: a. In General. The "withdrawal standard" of Section 3304(a)(4), FUTA, and Section 303(a)(5), SSA, limits withdrawals (with specified exceptions not relevant here) from a State's unemployment fund to payments of "compensation." The term "compensation" is defined in Section 3306(h), FUTA, as "cash benefits payable to individuals with respect to their unemploy- ment." Due to its restrictive nature, the withdrawal standard has prohibited States from deducting and withholding any form of income tax from payments of UC. For a detailed discussion of the limitations on the use of unemployment fund moneys, refer to UIPL 25-89 (54 Fed. Reg. 22973 (May 30, 1989)) which transmitted the Secretary's decision in a conformity proceeding involving the deducting and withholding of State UC taxes from UC and UIPL 45-89 (55 Fed. Reg. 1886 (January 19, 1990)) concerning permissible deductions from UC. P.L. 103-465 amends Federal law to provide for "voluntary with- holding" - that is, withholding at the taxpayer's election - of income taxes from a variety of payments made pursuant to Federal law as well as from UC. The joint Senate report describes the reason for this withholding: Some taxpayers find it burdensome to make quarterly estimated tax payments. These taxpayers may find it more convenient to elect to have Federal taxes withheld at the time specified payments are made to them. [S. Rep. No. 412, 103rd Cong. 2d Sess. 137-138 (1994)] b. Discussion of Amendments. Section 702(b) of P.L. 103-465 amended Federal law to require State law to provide for the voluntary withholding of Federal income tax from UC. Specifical- ly, new paragraph (18) of Section 3304(a), FUTA, was added to require, as a condition for employers in a State to receive credit against the Federal unemployment tax, that: Federal individual income tax from unemployment com- pensation is to be deducted and withheld if an indi- vidual receiving such compensation voluntary requests such deduction and withholding. Section 702(c) of P.L. 103-465 also amended the withdrawal standard of FUTA and SSA (and the definition of "unemployment fund" in Section 3306(f), FUTA) to permit "the withholding of Federal, State, or local individual income tax." As amended, the withdrawal standard in Section 3304(a)(4)(C), FUTA, now reads: nothing in this paragraph shall be construed to pro- hibit deducting an amount from unemployment compensa- tion otherwise payable 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 . . . . Section 303(a)(5), SSA, also reads similarly. These amendments to the withdrawal standard and the definition of "unemployment fund" have an effect on the new voluntary withholding requirement of Section 3304(a)(18), FUTA. Under the withdrawal standard amendments, any deducting and withholding from UC may be made only if "such deduction was made under a program approved by the Secretary of Labor." The requirements necessary for approval of a program are contained in item 4.e of this UIPL. c. Withholding of Federal Income Tax. New IRC Section 3402(p)(2), which was added by Section 702(a) of P.L. 103-465, concerns voluntary withholding of UC and affects the FUTA and SSA provisions concerning deducting and withholding income tax. This section applies to payments of UC "as defined in section 85(b)," IRC. Section 85(b) defines UC as "any amount received under a law of the United States or of a State which is in the nature of unemployment compensation." The effect of this definition is that, if the payment of UC is taxable under the IRC, then the State must provide for voluntary withholding of Federal tax from that amount. Section 3402(p)(2), IRC, also provides that the amount of Federal income tax withheld from UC "under this chapter [Chapter 24 of the IRC, Collection of Income Tax at Source on Wages] . . . shall be an amount equal to 15 percent of such payment." As a result, the amount of Federal income tax to be withheld from UC by the States must be equal to 15 percent of the UC payment. Since Section 3402(p)(2), IRC, is administered by the Federal Internal Revenue Service (IRS), the IRS has the authority to interpret these provisions. d. Withholding of State and Local Income Taxes. States will decide whether to allow State and/or local income taxes to be deducted and withheld from UC at an individual's election. A State may decide to deduct and withhold only State income taxes, only local income taxes, both, or neither. It is left to the State to decide whether the percentage of the payment to be deducted and withheld shall be a uniform amount established by the State law or determined by the individual. The mechanisms for transferring amounts deducted and withheld from the unemploy-ment fund to the State or locality will also be established by the State, subject to the requirements of items e.(2) and e.(3) below. Although a State has the authority to deduct and withhold State and local income taxes from UC for other States and for locali-ties outside the State, Federal law does not require a State to do so. A State may, therefore, restrict the taxes to be deducted and withheld to taxes subject to its laws or to individuals who plan to file a tax return against that State. e. Approved Program. As noted in item 4.b, the amendments to the withdrawal standard concerning the withholding of income tax require that any deduction must be made under a program approved by the Secretary. Rather than requiring each State to submit a plan describing its program, the Department has deter-mined that States using the draft legislative language contained in Attachment II to this UIPL may consider their withholding programs to be automatically approved. (States are free to delete optional language, such as that pertaining to State and local taxes and to make nonsubstantive modifications, including taking into account State usage and formatting.) States not using the draft language will need to submit a plan describing its program to the appropriate regional office. The following necessary elements of the program are discussed within the context of the draft language: (1) Notification. Section 301 of P.L. 102-318, the Unemployment Compensation Amendments of 1992, already requires State agencies to provide to each individual filing a claim a written explanation of Federal and State income taxation of UC and the requirements pertaining to estimated tax payments. See UIPL 45-92 (57 Fed. Reg. 47871, 47875-47876 (October 20, 1992)). To assure that the individual has the opportunity to have amounts withheld from all payments, the individual is to be advised in writing at the time of filing the initial claim that UC is subject to Federal income tax as well as (if applicable) State and local income taxes; that requirements exist pertaining to estimated tax payments; and that income tax may be withheld at the individual's option. States will need to revise their initial claims processes to obtain information concerning whether the individual elects or declines to have income tax withheld. Section (1) of the draft language addresses notification and other matters. It permits the deduction and withholding of Federal, State and local income taxes. The general reference in Section (1)(C) to the IRC assures that State law will always correspond to whatever percentage Federal law authorizes for deductions. Since the States are not required to deduct and withhold State and local income taxes from UC, the draft language pertaining to such withholding is at the State's option. The language permits specified percentages of State and local income taxes to be withheld under State law since this method will likely be the easiest to administer. The State may, however, modify the draft language to allow the individual the option of electing the percentage or dollar amount to be deducted and withheld. As discussed in item 4.d. above, the State may also add language restricting the State and local withholding option. The final issue addressed in Section (1) is the individual's option to change withholding status. The individual's anticipat-ed tax liabilities may change due to, for example, a change in the tax year or due to work performed during the benefit year, or the individual may determine that amounts being withheld are needed to meet current living expenses. Therefore, individuals must also be notified of and provided an opportunity to change their withholding status. Although the Department encourages States to allow the individual to change his or her withholding status several times, it will only require the States to permit this change at least once during each benefit year. States are not required to amend their continued claims forms or processes to accommodate this change in withholding. Instead, it will be sufficient for the agency to notify the individual at the time of filing the initial claim that withholding status may be changed at the individual's request. Section (1)(G) of the draft language permits an unlimited number of changes by the claimant. The State may, however, modify the language to restrict the number of changes to any number greater than or equal to one. (2) Amounts to Remain in Unemployment Fund until Transferred to Taxing Authority. Amounts deducted and withheld from unemployment compensation must remain in the State's unem- ployment fund until transferred to the Federal, State or local taxing authority as a payment of income tax. Such amounts will remain in the State's account in the Unemployment Trust Fund (UTF) until such time as they are drawn down to the State's benefit payment account in accordance with the State's agreement implementing 31 U.S.C. 6503, as amended by the Cash Management Improvement Act of 1990, P.L. 101-453, and the implementing regulations at 31 C.F.R. Part 205. The Department is currently exploring an alternative to the draw down approach with the U.S. Department of the Treasury. Under this alternative, amounts deducted and withheld would be trans-ferred directly from the State's account in the UTF to the IRS. (3) Federal Procedures. The State must follow all procedures specified by this Department and the IRS related to withholding. The inclusion of the provision in Section (3) of the draft language assures the Department that States will comply with any IRS procedures concerning the deducting and withholding of Federal income tax. It also gives States the authority to follow any procedures concerning deducting and withholding income tax which the Department or IRS may at some future date deem neces- sary. States may change the reference to "commissioner" to reference the title of the appropriate State official or agency. (4) Priorities. Since UC overpayments, child support obligations and food stamp overissuances may also be deducted and withheld from UC, States will need to address the priority of withholding when the claimant also elects to have income tax withheld. The Department has previously left to the States the matter of determining priorities when there are two or more deductions made from UC. The Department is currently discussing with the IRS whether the provisions of the IRC which it adminis- ters have any bearing on this issue. Since the issue of priority of withholding has not yet been re- solved, Section (4) of the draft language provides that the priority for deductions from UC shall be determined in accordance with State regulations. This will permit the States to accommo- date any Federal position on this matter. Funding: Costs incurred in withholding Federal, State or local income taxes from UC may be funded from UC administrative grants provid-ed under Section 302, SSA. Effective Date: Under subsection (d) of Section 702 of P.L. 103-465, the provi- sions of that section relating to voluntary withholding "shall apply to payments made after December 31, 1996." This means that, as of January 1, 1997, States must have provisions of law in effect providing for the voluntary withholding of Federal income tax and must be permitting the withholding Federal income tax in accordance with this UIPL. States should note that the effective date refers to "payments." Therefore, as of January 1, 1997, amounts are to be deducted and withheld from payments of UC for Federal income tax, if the individual so elects, even if the payment is for a week of unemployment beginning before January 1, 1997. States may not implement the withholding of Federal, State or local income taxes prior to January 1, 1997, since the withdrawal standard's limitations remain in effect until that date. We recommend, however, that States advise individuals filing new claims in the fourth calendar quarter of 1996 that voluntary holding will become available and that the State would, if the claimant so elected, begin deducting and withholding of income taxes as for payments made on and after January 1, 1997. Action Required: States must take appropriate action to assure legislation autho- rizing the voluntary withholding of Federal income tax is enacted by and implemented on January 1, 1997. As noted above in item 4.e., States not enacting legislation using the draft language attached to this UIPL will need to submit a plan to the appropri- ate Regional Office. To provide adequate time for review and comment, these plans are due on September 30, 1996.

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