Tuesday, January 21, 2014

States Face FUTA Credit Reduction for 2013

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In the United States, states and territories can take out federal unemployment account (FUA) loans to pay unemployment insurance benefits, with the understanding they must repay the money to the federal government.

If they have loans due on January 1 of at least two consecutive years and on November 10 of the 2nd year, the federal unemployment (FUTA) tax credits for employers in those states are reduced, with the extra FUTA taxes paid being applied against each state's loan. A credit reduction of 0.3% goes into effect each year, and they accumulate each year the loans remain unpaid. So the maximum credit of 5.4% can potentially be reduced by 0.3% for each year the loans are not repaid.

The U.S. Department of Labor recently released the list of states and territories that could not repay their federal unemployment account loans by the November 10 deadline. There are 13 states and 1 territory that will lose the full FUTA credit for 2013. There were no new states with a 0.3% credit reduction as all 14 states and territories were credit reduction states in 2013; however, five other states that had been subject to FUTA credit reduction in 2012 were able to repay their FUTA loans in full in 2013. Learn more about this topic in PayState Update, Issue 23 (Vol. 15).