Employers who do business in 18 states, plus the U.S. Virgin Islands, will be making larger-than- usual Federal Unemployment Tax Act (FUTA) tax deposits.
That’s because the U.S. Dept. of Labor just announced the states that’ll be known as “credit reduction” states for 2012 – i.e., those unable to pay back their Federal Unemployment Trust Fund loans. (See list at bottom.)
Here’s how it works: As you may know, employers pay a 6% FUTA tax rate on the first $7,000 of wages. Employers in most states receive a 5.4% credit when filing Form 940 in January, resulting in a 0.6% net tax rate.
However, some states, desperate to continue paying benefits to those out of work, were unable to repay federal loans they took to keep their unemployment insurance trust funds solvent.
(Note: To become a credit reduction state, a state has to have:
• outstanding loan balances on Jan. 1 for two consecutive years, and
• not repaid the full loan by Nov. 10 the second year.)
Looking ahead …
Credit reduction states will have their 2012 FUTA credit reduced from the usual 5.4% to 5.1%, making their FUTA tax rate 0.9%. If your company operates in a credit reduction state, you’ll want to talk with your CFO about planning for two things:
1. Increased FUTA taxes in 2013 (payable in 2014) if you operate in a credit reduction state. Unless the state pays off the loan or takes other specific actions, the credit reduction automatically incresaes by another 0.3% in 2013 – but those determinations aren’t made until November 2013, which is often late in the game for fiscal planning.
2. Annual interest assessments from states with outstanding loans. More than half the states are expected to assess employers for interest in 2013.
Following is the list of states showing, in order, the 2012 credit reduction, the total FUTA rate, average tax per employee, and percentage increase:
Arizona: 0.3%, 0.9%, $63, 50%
Arkansas: 0.6%, 1.2%, $84, 100%
California: 0.6%, 1.2%, $84, 100%
Connecticut: 0.6%, 1.2%, $84, 100%
Delaware: 0.3%, 0.9%, $63, 50%
Florida: 0.6%, 1.2%, $84, 100%
Georgia: 0.6%, 1.2%, $84, 100%
Indiana: 0.9%, 1.5%, $105, 150%
Kentucky: 0.6%, 1.2%, $84, 100%
Missouri: 0.6%, 1.2%, $84, 100%
Nevada: 0.6%, 1.2%, $84, 100%
New Jersey: 0.6%, 1.2%, $84, 100%
New York: 0.6%, 1.2%, $84, 100%
North Carolina: 0.6%, 1.2%, $84, 100%
Ohio: 0.6%, 1.2%, $84, 100%
Rhode Island: 0.6%, 1.2%, $84, 100%
Vermont: 0.3%, 0.9%, $63, 50%
Virgin Islands: 1.5%, 2.1%, $147, 250%
Wisconsin: 0.6%, 1.2%, $84, 100%