§ 3303. — Conditions of additional credit allowance.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 26USC3303]
TITLE 26--INTERNAL REVENUE CODE
Subtitle C--Employment Taxes
CHAPTER 23--FEDERAL UNEMPLOYMENT TAX ACT
Sec. 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 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 3 consecutive years immediately preceding the
computation date;
(2) no reduced rate of contributions to a guaranteed employment
account is permitted to a person (or a group of persons) having
individuals in his (or their) employ unless--
(A) the guaranty of remuneration was fulfilled in the year
preceding the computation date; and
(B) the balance of such account amounts to not less than
2\1/2\ percent of that part of the payroll or payrolls for the 3
years preceding the computation date by which contributions to
such account were measured; and
(C) such contributions were payable to such account with
respect to 3 years preceding the computation date;
(3) no reduced rate of contributions to a reserve 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
account within any 1 of the 3 years preceding such date, and
(C) the balance of such account amounts to not less than
2\1/2\ percent of that part of the payroll or payrolls for the 3
years preceding such date by which contributions to such account
were measured, and
(D) such contributions were payable to such account with
respect to the 3 years preceding the computation date.
For any person (or group of persons) who has (or have) not been subject
to the State law for a period of time sufficient to compute the reduced
rates permitted by paragraphs (1), (2), and (3) 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 appropriate, but in no case less than 1 year immediately
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), or (3).
(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 October 31), with respect to which he
finds that reduced rates of contributions were allowable with respect to
such 12-month period only in accordance with the provisions of
subsection (a).
(2) If the Secretary of Labor finds that under the law of a single
State (certified by the Secretary 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 October 31, and one or
more of such reduced rates were allowable under conditions not
fulfilling the requirements of subsection (a), the Secretary of Labor
shall, on such October 31, certify to the Secretary of the Treasury only
those provisions of the State law pursuant to which reduced rates of
contributions were allowable with respect to such 12-month period under
conditions fulfilling the requirements of subsection (a), and shall, in
connection therewith, designate 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 payable 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 Secretary of Labor shall make such certification
pursuant to this paragraph as he finds will assure 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 contributions to a type of
fund or account, as defined in subsection (c), which are allowable 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 provisions thereof with respect to which such findings were made,
for any 12-month period ending on October 31 pursuant to paragraph (1)
or (2) unless, 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 separate account in an
unemployment fund, maintained with respect to a person (or group of
persons) having individuals in his (or their) employ, from which
account, unless such account is exhausted, 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).
(2) Pooled fund
The term ``pooled fund'' means an unemployment 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
undivided, and from which compensation is payable to all individuals
eligible for compensation 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 mingled and undivided, and from which part of the fund
compensation is payable only to individuals 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 employment 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 account'' means a separate
account, in an unemployment 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 deducted
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 immediately following
the first week in which the individual renders services), and
(B) gives security or assurance, satisfactory to the State
agency, for the fulfillment of such guaranties, from which
account, unless such account is exhausted or terminated, 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 reserve account or a
guaranteed employment account, means the amount standing to the
credit 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 account 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 applicable 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 contributions 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)
described 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).
(f) Transition
To facilitate the orderly transition to coverage of service to which
section 3309(a)(1)(A) applies, a State law may provide that an
organization (or group of organizations) which elects before April 1,
1972, to make payments (in lieu of contributions) into the State
unemployment fund as provided in section 3309(a)(2), and which had paid
contributions into such fund under the State law with respect to such
service performed in its employ before January 1, 1969, is not required
to make any such payment (in lieu of contributions) on account of
compensation paid after its election as heretofore described which is
attributable under the State law to service performed in its employ,
until the total of such compensation equals the amount--
(1) by which the contributions paid by such organization (or
group) with respect to a period before the election provided by
section 3309(a)(2), exceed
(2) the unemployment compensation for the same period which was
charged to the experience-rating account of such organization (or
group) or paid under the State law on the basis of wages paid by it
or service performed in its employ, whichever is appropriate.
(g) Transitional rule for Unemployment Compensation Amendments of 1976
To facilitate the orderly transition to coverage of service to which
section 3309(a)(1)(A) applies by reason of the enactment of the
Unemployment Compensation Amendments of 1976, a State law may provide
that an organization (or group of organizations) which elects, when such
election first becomes available under the State law with respect to
such service, to make payments (in lieu of contributions) into the State
unemployment fund as provided in section 3309(a)(2), and which had paid
contributions into such fund under the State law with respect to such
service performed in its employ before the date of the enactment of this
subsection, is not required to make any such payment (in lieu of
contributions) on account of compensation paid after its election as
heretofore described which is attributable under the State law to such
service performed in its employ, until the total of such compensation
equals the amount--
(1) by which the contributions paid by such organization (or
group) on the basis of wages for such service with respect to a
period before the election provided by section 3309(a)(2), exceed
(2) the unemployment compensation for the same period which was
charged to the experience-rating account of such organization (or
group) or paid under the State law on the basis of such service
performed in its employ or wages paid for such service, whichever is
appropriate.
(Aug. 16, 1954, ch. 736, 68A Stat. 440; Sept. 1, 1954, ch. 1212, Sec. 2,
68 Stat. 1130; Pub. L. 91-373, title I, Secs. 104(c), 122(a), 142(c)-
(e), Aug. 10, 1970, 84 Stat. 699, 702, 707; Pub. L. 94-455, title XIX,
Secs. 1903(a)(13), 1906(b)(13)(C), Oct. 4, 1976, 90 Stat. 1809, 1834;
Pub. L. 94-566, title I, Sec. 122(a), (b), Oct. 20, 1976, 90 Stat. 2675,
2676.)
References in Text
The Unemployment Compensation Amendments of 1976, referred to in
subsec. (g), is Pub. L. 94-566, Oct. 20, 1976, 90 Stat. 2667, as
amended. For complete classification of this Act to the Code, see Short
Title of 1976 Amendment note set out under section 3311 of this title
and Tables.
The date of enactment of this subsection, referred to in subsec.
(g), is the date of enactment of Pub. L. 94-566, which was approved Oct.
20, 1976.
Amendments
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 reference 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, Sec. 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, Sec. 122(a), added subsec. (g).
1970--Subsec. (a). Pub. L. 91-373, Sec. 122(a), added to provision
following par. (3) the authorization for the allowance of a reduced rate
by State law (but not less than 1 percent) on a reasonable basis other
than as permitted by par. (1), (2), or (3).
Subsec. (b). Pub. L. 91-373, Sec. 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, Sec. 104(c), added subsecs. (e)
and (f).
1954--Subsec. (a). Act Sept. 1, 1954, inserted sentence relating to
reduced rates for new employers.
Effective Date of 1976 Amendments
Section 122(c) of Pub. L. 94-566 provided that: ``The amendment made
by subsection (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 applicable 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.
Section 122(b) of Pub. L. 91-373 provided that: ``The amendments
made by subsection (a) [amending this section] shall apply with respect
to taxable years beginning after December 31, 1971.''
Amendment by section 142(c)-(e) of Pub. L. 91-373 applicable 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
Section 2 of act Sept. 1, 1954, 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, Sec. 524, Apr. 20, 1983, 97 Stat. 149, as
amended by Pub. L. 99-514, Sec. 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 determined that
such organization was described in section 501(c)(3) of such Code,
and
``(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 section 3303(f) of such Code shall be applied with respect to such
organization as if it did not contain the requirement that the election
be made before April 1, 1972, and by substituting `January 1, 1982' for
`January 1, 1969'.''
Section Referred to in Other Sections
This section is referred to in sections 3302, 3304, 3310 of this
title.
