California, Connecticut, Illinois, and New York will incur a 0.30% FUTA credit reduction for 2022. This brings the effective FUTA rate to 0.90% in these states and equates to an additional cost of $21 per employee that reaches the $7,000 federal unemployment taxable wage base.
During the COVID-19 Pandemic of 2020, twenty-three states and one territory took out Title XII loans to keep their trust funds afloat. Most of those states repaid their loan balances through additional tax collection or funds from the CARES Act and American Rescue Plan Act or a combination of both. As of January 1, 2022, there were nine states that still had an outstanding balances on their loans. A state that has an outstanding loan for two consecutive January 1’s and fails to repay the funds by the November 10th deadline in the second year incurs a FUTA credit reduction. California, Connecticut, Illinois, and New York were unable to repay their balances by November 10, 2022 and will incur a 0.30% FUTA credit reduction for 2022. This brings the effective FUTA rate to 0.90% in these states.
Additionally, US Virgin Islands has failed to repay their loan from the previous recession and will also experience a 0.30% FUTA credit reduction, bringing their final rate to 4.20% for 2022. An additional credit reduction, the benefit-cost rate (BCR) add-on, could have been in effect for the US Virgin Islands for 2022, but the US DOL approved the jurisdiction’s application for relief from the add-on.
Note that FUTA payments for 2022 are due on January 31, 2023.
