As of July 1st the state of Connecticut had not submitted a request for waiver of the Benefit Cost Rate (BCR) Add On tax increase to the Federal Unemployment Tax (FUTA). Without a waiver, the FUTA will automatically increase Federal Unemployment Tax rates for employers with employees in Connecticut. The waiver request is due under federal regulations to be submitted before July 1st. Multiple sources have confirmed that the state has decided to permit the FUTA tax to go up the estimated BCR additional 0.5% ($35 per employee) for FUTA taxes for 2014. The increased tax must be finally paid in January of 2015.
The total FUTA tax in Connecticut (with reduced offsets) is now projected to be 2.3% ($161 per employee) instead of the normal 0.6% ($42 per employee paid in most states).
With the state’s failure to seek waiver, employers doing business in Connecticut are projected to pay the highest FUTA tax rate in the country.
Ten states with continuing federal loans have already submitted waivers and a number of states with outstanding loans are taking measures to assure that the balances are paid off before November 10th. States with no outstanding loans as of November 10th will avoid an increased FUTA tax for 2014.
The decision by Connecticut comes as a surprise to many employers who may have assumed that Connecticut would follow all other states in seeking to avoid the additional Federal Unemployment Tax increase. The state continues to carry a significant outstanding loan balance but has so far chosen not to address UI trust fund solvency through state legislation. The impact of a FUTA tax increase will be felt most acutely as a percentage increase by employers who have low UI tax experience rates. Also, employers with maximum state UI rates that may not have budgeted for the additional FUTA increase may need to make adjustments to pay the higher tax.
We continue to track waivers and impact in each state and will report as we receive more details.