Potential FUTA Cost Increase
UWC, Inc., a national employer advocacy organization devoted to unemployment public policy issues, is reporting the potential triggering of an additional FUTA tax increase in some states. In addition to the FUTA credit reduction, states that continue to have outstanding Title XII loan balances are subject to a Benefit Cost Ratio (BCR) add-on beginning in the fifth taxable year of any succeeding January 1st where a loan balance still exists. In essence, the rate of the FUTA credit reduction is accelerated based on two calculations.
Equifax Workforce Solutions is aware of the BCR add-on under Title XII of the Social Security Act. We have been actively keeping tabs on the BCR trigger, in conjunction with our regular monitoring and reporting about FUTA credit reduction states. We expect greater efforts by states that can either pay off their Title XII loans by this November 10th, or employ bonding to do so, because of the potential for the BCR to be added on to their current FUTA credit reduction. First quarter contribution payments are typically the largest amount of tax receipts annually, so we anticipate some states will be able to repay their Title XII loans, thereby avoiding future FUTA credit reductions and the BCR add-on. Contributions for Q1/2013 are due at the end of April, but the receipts usually don’t show up in Treasury balances for a state’s Trust Fund until late May or early June, and then payment on the federal loans are made. Therefore, we aren’t able to clearly assess the situation at present.
States at the greatest risk for the BCR add-on for the 2013 Federal 940 are Indiana and South Carolina. Regulations provide for a waiver of the BCR, as long as it is requested prior to July 1st of the year it is needed and all criteria are met. UWC is reporting that these two states are considering the application for the waiver.
We will continue to watch this matter closely and will advise our clients accordingly via our bi-weekly Flash Reports and Webcasts.
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