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Potential 2015 FUTA Credit Reduction States

The Federal Unemployment Tax Act (FUTA) has always been an odd payroll tax. The Act states that the FUTA rate is 6.0%, but feeling magnanimous, the Feds grant you a credit of 5.4%. So really the rate that most employers face is 0.6%.

Under Title XII of the Social Security Act, states with financial difficulties can borrow funds from the federal government to pay UI benefits. If a state defaults on its repayment of the loan, the amount of state UI tax credits that employers in the state may claim is reduced. Which means if you’re living in a state with money problems, you probably live in a “Credit Reduction State”, and you’re going to be paying more on your form 940.

The states below are currently in the running to be Credit Reduction States. If they clear their balance by November 10, 2015, then they can get off the list. South Carolina shows promise to do so. We’ll keep you posted in that unlikely event any other states pay their balance. Here are the potential rates for 2015.

  • California. 2.9%, due to a 1.5% credit reduction because of California’s failure to repay its outstanding federal loans for six consecutive years, and a 1.4% BCR add-on. California applied for, and received, a waiver from the BCR add-on for the 2014 tax year.
  •  Connecticut. 2.1%, due to a 1.5% credit reduction because of Connecticut’s failure to repay its outstanding federal loans for six consecutive years, and a 0.6% BCR add-on.
  •  Indiana. 2.7%, due to a 1.8% credit reduction because of Indiana’s failure to repay its outstanding federal loans for seven consecutive years, and a 0.9% BCR add-on. The Jan. 29, 2015 version of the Indiana Unemployment Insurance Employer Handbook says that Indiana will again be a FUTA credit reduction state in the 2015 tax year (payable in January 2016) due to its outstanding federal UI loans. Indiana applied for, and received, a waiver from the BCR add-on for the 2014 tax year.
  •  Kentucky. 2.2%, due to a 1.5% credit reduction because of Kentucky’s failure to repay its outstanding federal loans for six consecutive years, and a 0.7% BCR add-on. New York. 1.5% because of New York’s failure to repay its outstanding federal loans for six consecutive years.
  •  North Carolina. 2.1%, due to a 1.5% credit reduction because of North Carolina’s failure to repay its outstanding federal loans for six consecutive years, and a 0.6% BCR add-on. North Carolina applied for, and received, a waiver from the BCR add-on for the 2014 tax year.
  •  Ohio. 2.7%, due to a 1.5% credit reduction because of Ohio’s failure to repay its outstanding federal loans for six consecutive years, and a 1.2% BCR add-on. Ohio applied for, and received, a waiver from the BCR add-on for the 2014 tax year.
  •  South Carolina. 2.1%, due to a 1.8% credit reduction because of South Carolina’s failure to repay its outstanding federal loans for seven consecutive years, and a 0.3% BCR add-on. The South Carolina Department of Employment and Workforce (DEW) expects to repay the state’s outstanding federal unemployment trust fund loan in full this summer. Recently, it made a $75 million early loan repayment. It has $120 million left to repay.
  •  Virgin Islands. 3.0%, due to a 1.5% credit reduction because of the Virgin Island’s failure to repay its outstanding federal loans for six consecutive years, and a 1.5% BCR add-on. The Virgin Islands applied for, and received, a waiver from the BCR add-on for the 2014 tax year.

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