Employers in three states and the US Virgin Islands will face increased unemployment tax costs in 2015, according to data released Tuesday by the US Department of Labor. Contingent workforce programs in those states may see higher bill rates.
Employers in California, Connecticut, Ohio and the Virgin Islands are losing a portion of their standard tax credit on the Federal Unemployment Tax Act (FUTA) because those states and territory have unpaid balances on funds borrowed from the federal government to pay unemployment benefits.
The FUTA rate is 6.0 percent on the first $7,000 of wages. However, employers in states in good standing receive a credit of 5.4 percentage points, resulting in an effective tax rate of 0.6 percent on the first $7,000 in wages.
However, businesses in states that borrow money from the federal government for unemployment insurance programs can see reductions in that credit. The FUTA credit is reduced by 0.3 percent-point when a state has two consecutive years of unpaid borrowings as of Jan. 1, and the full amount of the loans are not repaid by Nov. 10, according to the DOL. The credit is reduced by an additional 0.3-percentage point for each additional year until state’s unemployment loans are repaid. For example, employers in a state with outstanding loans after two years would have an effective tax rate to 0.9 percent.
The affected states and their 2016 FUTA rates are:
- California: 2.1%
- Connecticut: 2.7%
- Ohio: 2.1%
- Virgin Islands: 2.1%
Five other states began the year in arrears, but paid their loans by the Nov. 10 deadline, which means companies in those states will receive the 5.4 percentage-point tax rate reduction. Those states are: Indiana, Kentucky, New York, North Carolina and South Carolina.