Potential 2014 Federal Unemployment Tax Act (FUTA) Credit Reductions

Increased FUTA Rates Continue to Haunt Employers

Most employers are now painfully aware that the cost of FUTA has increased incrementally each year for the last several years. That’s because 15 states plus the Virgin Islands have unpaid loans from the Federal Government.

What many may not realize is that most of those states are now in their fifth year of indebtedness. That means there is an additional penalty looming called the Benefit Cost Rate. This is an additional decrease in the credit reduction calculated by a special formula for each state. The net result of a credit reduction is an increase in the FUTA rate.

In order to avoid this additional cost one of two things must happen:
1) The loan must be paid by the state by November 10th. If that happens the overall rate reverts to the standard 0.6 percent.
2) The state can apply for a waiver.

Scroll down to see a schedule of the states that are in arrears. This schedule shows their potential 2014 rate with and without the BCR (Benefit Cost Rate). There is also a column showing who has applied for a waiver. You will see that all the states with the BCR looming have applied. The down side to that is it means they do not anticipate paying off the loans anytime soon. Meaning there could be additional fees assessed by the state against their employers in order to pay down the debt and satisfy the interest being charged.

Between the FUTA and SUTA tax increases, employers are looking at Federal unemployment taxes costing more than $74 billion over the next ten years, read more here. Want more details? See the 2015 Budget Midsession Review and the President’s Budget.


These states had Title XII advance balances on January 1, 2014 and are potentially subject to a reduction in FUTA credit on their IRS Form 940 for 2014 if the loan is not repaid by November 10, 2014:

State 2014 Potential
Credit Reduction
2014 Estimated
BCR add-on
2014 Estimated Total Credit Reduction BCR add-on Waiver
Application Received
Avoidance
Application Received
Arkansas 1.2%(2) 0.4% 1.6%
California 1.2%(2) 1.5% 2.7% X
Connecticut 1.2%(2) 0.5% 1.7%
Delaware 0.9%(1) 0.9%
Georgia 1.2%(2) 0.6% 1.8%
Indiana 1.5%(2) 1.2% 2.7% X
Kentucky 1.2%(2) 1.0% 2.2% X
Missouri 1.2%(2) 0.4% 1.6% X
New Jersey 1.2%(2) 0.0% 1.2%
New York 1.2%(2) 0.7% 1.9% X
North Carolina 1.2%(2) 0.6% 1.8% X
Ohio 1.2%(2) 1.4% 2.6% X
Rhode Island 1.2%(2) 1.0% 2.2% X
South Carolina 1.5%(2) 0.5% 2.0% X X
Virgin Islands 1.2%(2) 1.5% 2.7% X
Wisconsin 1.2%(2) 0.2% 1.4% X

(1) This state is also potentially subject to the 2.7 additional credit reduction formula. This add-on is applicable in states following their third or fourth consecutive January 1 with an outstanding Federal advance. A description is found in FUTA section 3302 (c)(2)(B)

(2) This state is also potentially subject to the Benefit Cost Rate (BCR) additional credit reduction formula. This add-on is applicable in states following their fifth consecutive January 1 with an outstanding Federal advance. A description is found in FUTA section 3302 (c)(2)(C)

 

Update 11/17/14 : FUTA Tax Rates for 2014

The US Department of Labor, Employment and Training Administration, Office of Unemployment Insurance posted the results of its review of state unemployment trust fund loan status.

States with increased FUTA tax rates include:

California 1.8%
Connecticut 2.3%
Indiana 2.1%
Kentucky 1.8%
New York 1.8%
North Carolina 1.8%
Ohio 1.8%
Virgin Islands 1.8%

All other state and jurisdiction rates will be set at the base 0.6% rate (all on the $7,000 taxable rate base).

FUTA taxes for 2014 are to be finally paid by January 31, 2015th.

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