After all the chaos and upheaval of the last year, something is looking a bit familiar – and it’s not welcome news for many business owners.

Many states appear to be headed down the same path as they did in 2011 to 2017 after the great recession of 2007 and 2008. This is when the majority of states received federal loans to shore up their trust reserves. As of June 7, 2021, eighteen states’ unemployment insurance trust funds had outstanding loans from the Federal Unemployment Account totaling $52.66 billion.

With high jobless rates since March of 2020 due to the COVID-19 pandemic, many states have suffered record-high unemployment rates rendering the state’s unemployment trust fund insolvent.

Let’s review the Federal Unemployment Tax Act (FUTA) tax rate and how it works to ensure we all understand how this could possibly impact your business.

The FUTA tax rate is currently 6.0% on the first $7,000 in wages paid per employee each year. However, employers in general receive a 5.4% FUTA tax credit reduction when they file their FORM 940 (Employer’s Annual FUTA Tax Return), resulting in a net FUTA tax rate of 0.6%.

If a state has an outstanding federal unemployment loan balance on January 1 for two consecutive years, and does not repay the full amount of its loans by November 10th of the second year, the FUTA credit rate for employers in that state is reduced until the loan is repaid. This net effect results in a higher rate the employer will pay. The reduction schedule is 0.3% for the first year, another 0.3% for the second year and an additional 0.3% for each year thereafter that the state has not repaid its loan in full.

Employers in the following states and jurisdictions are at risk of increasing FUTA taxes as early as 2022: