As staffing company business owners and managers, you’ve had a lot to think about and adapt to in the last 18 months or so. That’s why part of our job at TRICOM is to make sure we stay abreast of any changes – tax, legislative, or otherwise – that could impact your business.
One such change is the FUTA Credit Reduction.
The standard FUTA tax rate is 6% on the first $7,000 of wages subject to FUTA. Employers receive a credit of 5.4% if they pay their quarterly unemployment in a timely manner using Form 940, making the rate .6% (the percentage we are used to). If your state has a federal loan for unemployment that has not been paid within the given timeframe, your credit is reduced by .3% each year.
If states are struggling to come up with the funds to pay Unemployment Insurance benefits for the residents of their state, they may take out a loan from the Federal Unemployment Trust Fund. If a state fails to pay that loan back and has an outstanding loan balance on January 1 for two consecutive years and does not repay the full amount of its loans by November 10 of the second year, then the FUTA credit rate employers in that state pay is reduced – which in effect means that you’ll pay a higher FUTA tax rate.
With the high unemployment rates during the last 18 months of the pandemic, we’re seeing some unprecedented loan amounts from the Federal Unemployment Trust Funds.
As of September 30, 2021, there were 12 states or territories that had outstanding FUTA loan balances totaling over $45.5 billion. The list is as follows:
