2014 FUTA Tax Rates – Credit Reductions and BCR
When a state’s unemployment insurance (“UI”) trust fund becomes insolvent, the state has an opportunity to borrow from the federal government in the form of “Title XII” loans to pay unemployment benefits to claimants. These Title XII loans can increase federal unemployment (“FUTA”) tax rates for employers in the affected states.
In general, the net FUTA tax rate is 0.6% (6.0% gross FUTA tax rate – 5.4% standard FUTA credit) on an annual taxable wage base of $7,000. However, for employers operating in states that continue to borrow from the federal government, this net FUTA tax rate is potentially increased by the following:
- FUTA Credit Reduction Add-On: This add-on is applicable following a state’s second consecutive January 1 with an outstanding Title XII loan. Employers in an impacted state lose 0.3% of the 5.4% standard credit for each year the Federal Title XII loan remains outstanding (i.e., 0.3%, 0.6%, 0.9%, 1.2%, 1.5%, etc.). The FUTA credit reduction add-on can be waived by the U.S. Department of Labor (U.S. DOL) based on attainment of certain criteria.
- 2.7% Add-On: This add-on is applicable following a state’s third consecutive January 1 with an outstanding Title XII loan. The 2.7% add-on cannot be waived by the U.S. DOL.
- Benefit Cost Rate/Ratio (“BCR”) Add-On: This add-on is applicable in states following their fifth consecutive January 1 with an outstanding Title XII loan. States can request a waiver by submitting a request to the U.S. DOL by July 1 of each respective year. Should a waiver be granted, a state may still be subject to the 2.7% add-on.
On November 10, 2014, the U.S. DOL issued final FUTA tax rates for employers in states with outstanding Title XII loans. The table below contains a summary of the effective FUTA tax rates for calendar year 2014:
- South Carolina applied for and received a waiver for both the BCR add-on and the basic FUTA credit reduction by repaying a sufficient amount of their outstanding Title XII loans.
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