FUTA Credit Reduction States Likely to Grow for 2022
The U.S. Department of Labor released its list of potential FUTA credit reduction states for 2021 with only the Virgin Islands on it. The potential credit reduction is 3.7%, which includes a Benefit Cost Rate (BCR) add-on that could be waived. The determination for 2021 will be made after November 10, 2021.
The Virgin Islands continues to have an outstanding Federal Unemployment Account (FUA) loan and is subject to a credit reduction for 2020. The additional FUTA tax must be deposited by the due date of the 2020 Form 940, which is February 1, 2021.
It seems likely that the list of FUTA credit reduction states will grow for 2022. If states have outstanding FUA loans on January 1 of at least two consecutive years and on November 10 of the second year, they are subject to a credit reduction on their federal unemployment tax rate until the balance has been paid off.
There are many states that have outstanding FUA loans (18 states as of January 27, 2021, with loans totaling over $48 billion). Employers in these states will not be subject to FUTA credit reductions until 2022 if the state began borrowing in 2020 and the FUA loans remain unpaid on January 1, 2021, January 1, 2022, and on November 10, 2022. The additional FUTA tax would be due on January 31, 2023.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Manager of State Payroll Information Resources for the APA.