California Faces a FUTA Credit Reduction for 2022
California’s Employment Development Department (EDD) announced that the state will not pay back its Federal Unemployment Account (FUA) loans by the November 10, 2022, deadline and will be a Federal Unemployment Tax Act (FUTA) credit reduction state for 2022, with a basic reduction of 0.3% [EDD, Tax Branch News No. 503, 11-1-22].
Later this month, the U.S. Department of Labor will announce the states and territories that have balances on outstanding FUA loans. As of November 1, five states and the U.S. Virgin Islands have an outstanding FUA loan balance. The additional FUTA tax would be due on January 31, 2023.
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 FUTA rate until the loan has been paid off. Each year a loan continues to be unpaid, the credit reduction increases by 0.3%, though states that have made an effort to keep their balances in check have some opportunities to avoid the reduction.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for the APA.