Of the states that have not repaid their UI trust fund loans to the federal government and are subject to the Benefit Cost Rate (BCR) Add On, only Connecticut has chosen not to seek a waiver of the additional tax. The BCR Add On in Connecticut will further increase the FUTA tax for employers in Connecticut by a US DOL estimated 0.7 ($49 per employee) in addition to the $105 increase due to the state continuing to have an outstanding loan balance. Employers in Connecticut are projected to pay a net FUTA rate for 2015 of $196 per employee. This compares to the normal FUTA per employee tax of just $42 per employee.
This is the second year in a row in which Connecticut is the only state not to apply for a waiver.
California, Indiana, Kentucky, Ohio and the Virgin Islands have applied for waiver. Kentucky has also applied for a cap on the FUTA increase.
The final determination of BCR Add On Waivers and/or FUTA Cap requests will be made by US DOL shortly after November 10th for application to the FUTA tax rates for 2015.
As we have reported in previous years, employers in states with outstanding federal loans are at risk not only of the regular $21 per employee increase in Federal Unemployment Taxes for 2015 but also at risk for larger increases due to the Benefit Cost Rate (BCR) Add On.
*North Carolina, South Carolina and New York paid off their outstanding Title XII debts earlier in 2015 and are projected not to have an outstanding balance on November 10th. The FUTA offset credit will likely be restored to the full 5.4% for 2015 resulting in a net 0.6 FUTA tax rate on the first $7,000 of wages paid to each employee by employers in these states.
States that had Title XII advance balances on January 1, 2015 are potentially subject to a reduction in FUTA credit on their IRS Form 940 for 2015, if the outstanding advance is not repaid by November 10, 2015:
Credit Reduction 2015 Potential 2015 Estimated 2015 Potential Total Reduction
State(1) Due to Outstanding Advance(2) “2.7 add-on” (3) “BCR add-on”(4) Credit Reduction(5) Total 2015 FUTA Rate (Potential) Per Employee Cost (Potential)
California 1.5% 0.0% 1.4% 2.9% 3.5% $245 ($147 with BCR Waiver)
Connecticut 1.5% 0.0% 0.7% 2.2% 2.8% $196
Indiana 1.8% 0.0% 0.9% 2.7% 3.3% $231($168 with BCR Waiver)
Kentucky 1.5% 0.0% 0.7% 2.2% 2.8% $196 ($147 with BCR Waiver)
New York 1.5% 0.0% 0.0% 1.5%*
North Carolina 1.5% 0.0% 0.6% 2.1%*
Ohio 1.5% 0.0% 1.2% 2.7% 3.3% $231 ($147 with BCR Waiver)
South Carolina 1.8% 0.0% 0.3% 2.1%*
Virgin Islands 1.5% 0.0% 1.6% 3.1% 3.7% $259 ($147 with BCR Waiver)
The states subject to an increase in FUTA tax rate for 2015 and at risk of a BCR Add On increase as of June 29, 2015 have outstanding loan balances (see below)
Federal regulations require that there not be a “net decrease in solvency” in the state UI trust fund in order for a state to qualify for a waiver of the Benefit Cost Rate (BCR) add-on
A “net decrease in solvency” is defined in 20 CFR §606.21(b) as:
.. any action is or was taken (legislative, judicial, or administrative), that is effective during the 12-month period ending on September 30 of such taxable year, which has resulted in or will result in an increase in benefits without at least an equal increase in taxes, or a decrease in taxes without at least an equal decrease in benefits.