The U.S. Department of Labor (DOL) has issued the final list of states for which employers will not be eligible to claim the maximum amount of state unemployment tax credits on their 2013 federal unemployment (FUTA) tax return because the state has had an outstanding federal unemployment insurance (UI) loan for at least two years.

Background.  Employers pay FUTA tax at a rate of 6.0% on the first $7,000 of covered wages paid to each employee during a calendar year, regardless of when those wages were earned. This tax may be offset by credits of up to 5.4% (known as the “normal credit” and “additional credit”) against their FUTA tax liability for amounts paid to a state UI fund by January 31 of the subsequent year. The net FUTA tax rate for most employers is 0.6% (i.e., 6.0% − 5.4%).

This increases the employer’s FUTA tax rate by 0.3% beginning with the second consecutive January 1 in which the loan isn’t repaid, then an additional 0.3% annually thereafter. (Code Sec. 3302(c) ) Thus, the net FUTA tax rate paid by an employer in a state that has had an unpaid loan with the federal government for two consecutive years will be 0.3% higher than the net 0.6% rate used by employers in states without past due loans. The net FUTA tax rate continues to rise 0.3% for each additional year that the loans remain unpaid.

2013 credit reduction states.  The following states and the Virgin Islands are included on the DOL list as credit reduction states in 2013, based on their failure to repay their outstanding federal UI loans by Nov. 10, 2013: Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, and Wisconsin.

…0.9% credit reduction.  The credit reduction for employers in Arkansas, California, Connecticut, Georgia, Kentucky, Missouri, New York, North Carolina, Ohio, Rhode Island, and Wisconsin will be 0.9% (a maximum of $63 more per employee, as compared to employers not in credit reduction states) because of their state’s failure to repay its outstanding federal loans for four consecutive years.