When the recession got tough and the recovery was slow 15 states had to borrow money from the Federal government in order to pay unemployment claims and they have not yet paid it back. If your state was one of those states you will not be able to claim the credit normally given for paying FUTA.
According to Jeffery Ashendorf of the firm Ford Harrison:
Employers generally pay FUTA tax at a rate of 6 percent on the first $7,000 of covered wages paid to each employee during a calendar year, regardless of when those wages were earned. That federal tax for a year is then offset by credits for amounts that the employer pays to a state unemployment insurance fund by January 31 of the following year. The “normal credit” is up to 5.4 percent of the first $7000 of covered wages, so the net FUTA tax rate for most employers is 0.6 percent (i.e., 6.0 percent – 5.4 percent), or a maximum of $42 per year per employee.
If the state has not repaid the borrowed money then the amount of the credit is reduced. According to Ashendorf “The reduction in the credit (and the increase in the FUTA rate) is 0.3 percent beginning with January 1 of the second consecutive year in which the loan is not repaid by November 10. For each succeeding year in which there is a balance, the credit is further reduced by an additional 0.3 percent.”
In 2014 15 states have had a loan for two years. If they do not pay off this loan by November 10, 2014 all employers in that state will face a FUTA credit reduction.
The potential credit reductions run from 0.9% to 1.5%, with most being 1.2%. Here is the list of states: Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Missouri, New Jersey, New York, North Carolina, Ohio, Rhode Island, South Carolina and Wisconsin. The Virgin Islands are also in that category. I refer you here if you want to see what each state’s reduction will be.
Ashendorf says the dollar amounts per person will be small but you need to be aware if you state will cause you to have a variation in what you have been paying because this will have to be paid when the Form 940 is files in January 2015.
Hopefully your state will pay its debt by November this year and you will not have to be worried about this.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net