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Annual FUTA Credit-Reduction Rates by State

Author: Rena Pirsos, XpertHR Legal Editor

Employers covered by a state's unemployment insurance (UI) program pay Federal Unemployment Tax Act (FUTA) tax at a standard rate of 6% on the first $7,000 of employee wages paid subject to FUTA. The funds collected from the FUTA tax go into the Federal Unemployment Trust Fund, administered by the US Department of Labor (DOL). In times of high unemployment, states can borrow money from the federal government to continue paying UI benefits to residents and to keep their own UI trust funds solvent. If a state has outstanding loan balances on January 1 for two consecutive years and does not repay the full amount of its loans by November 10 of the second year, the FUTA credit rate for employers in that state is reduced until the loan is paid off.

The reduction amount is 0.3% for the first year the state is a credit-reduction state, another 0.3% for the second year and an additional 0.3% for each year thereafter that the state has not fully repaid its loan. Additional offset credit reductions may apply to a state beginning with the third and fifth tax years if there is still a loan balance and certain other criteria are not met. The DOL announces any credit reduction states after the November 10 deadline each year (see