CREDIT REDUCTION STATES

November 30, 2011

Under Title XII of the Social Security Act, states with financial difficulties can borrow funds from the federal government to pay unemployment benefits. If a state defaults on its repayment of the loan, the amount of state unemployment tax credits that employers in the state may claim is reduced. Employers in credit reduction states pay FUTA tax at a 0.3% rate higher than other employers, beginning with the second consecutive January 1 in which the loan is not repaid by November 10 of that year. For each succeeding year in which there is a balance, the credit is further reduced by an additional 0.3%.

Twenty states and the Virgin Islands have defaulted on their Unemployment Insurance loan payments which were due on November 10, 2011.  As a result, there may be a reduction in FUTA credit for 2011 in each of the work states as indicated below.

Arkansas .3%

Nevada .3%

California .3%

New Jersey .3%

Connecticut .3%

New York .3%

Florida .3%

North Carolina .3%

Georgia .3%

Ohio .3%

Illinois .3%

Pennsylvania .3%

Indiana .6%

Rhode Island .3%

Kentucky .3%

Virgin Islands .3%

Michigan .9%

Virginia .3%

Minnesota .3%

Wisconsin .3%

Missouri .3%

 

Alabama and Indiana have repaid their loans as of November 10, 2011. South Carolina is in the process of repaying its loan balance and has requested it not be included in the final list of credit reduction states.

The FUTA tax rate is 6.0% on the first $7,000 of wages per worker. Employers generally receive a state credit of 5.4%, resulting in a net FUTA tax of 0.6% in the second half of 2011 (0.8% in the first half of 2011).

Is there relief on the horizon? On November 6, 2011, House Democrats introduced "The Emergency Unemployment Compensation Extension Act" which provides for a one year moratorium on interest payments for states and tax relief for employers in states with outstanding unemployment trust fund loans. If passed, this bill would eliminate the .3% FUTA increase due in January 2012 (for tax year 2011) as discussed above.  The outcome of this bill will probably not be known until very near to the end of this year.

For more information please contact:

Joe Bessacini
Vice President, Film & TV Production Incentives
818-480-4427
jbessacini@castandcrew.com

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