More States to See Lowered FUTA Credit
Each year, employers are responsible for paying 6% of the first $7,000 of each employee’s wages into the federal unemployment insurance trust fund. Employers that pay their state UI taxes on time receive a credit on their federal UI tax, which leaves them with a lower effective Federal Unemployment Tax Act tax rate. Recent reductions in offset credits will begin to affect a larger number of states when employers are obligated to make their FUTA tax payments in January 2012.
States that borrow funds from the federal government to pay UI claims have two years to repay the loans. Employers in 20 states with outstanding UI loans will have a reduction in their FUTA credit for 2011 (only three states had a reduction for 2010). The final determination was made earlier this month based on state loan balances pursuant to FUTA.
Employers usually get a credit of 5.4%, resulting in a net tax of 0.6% (prior to June 30, the net tax was 6.2% minus 5.4%, or 0.8%.) According to the latest information from the U.S. Department of Labor’s Employment and Training Administration’s Web site:
- Michigan employers will now have a 4.5% FUTA credit. Their previous FUTA credit was 4.8%.
- Indiana employers will now have a 4.8% FUTA credit. Their previous FUTA credit was 5.1%.
- Employers in the following locations will now have a 5.1% FUTA credit: Arkansas, California, Connecticut, Florida, Georgia, Kentucky, Minnesota, Missouri, North Carolina, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Virginia, the Virgin Islands, and Wisconsin.
State legislatures continue to focus on UI reform. Earlier this year, a deal struck between House and Senate leaders in South Carolina allowed the state to qualify for credit reduction avoidance, which means the state will not have a further credit reduction for 2011. South Carolina had a 0.3% reduction in 2010.
Earlier this month in Illinois, the state legislature passed legislation increasing the state’s bond authority to allow it to raise money as necessary to avoid FUTA offset credit penalty increases. The bill enacted various other UI reform measures as well.
COATSsql is prepared for the lowered FUTA credit changes. In the past, the state’s allowable FUTA credit was hard-coded into COATS Staffing Software. In the new version to be released in December 2011, COATS will allow the end user to edit their own states’ rates regarding their allowable FUTA credit. The quarterly reports will reflect the changes to the states’ rates accordingly.
If you have any questions about COATS and the changes in FUTA credit, contact us.