US DOL Releases FUTA Offset Credit Decisions

On November 23, 2016, the US DOL, Employment and Training Administration released its determination with respect to FUTA offset credits in the Federal Register. See https://www.gpo.gov/fdsys/pkg/FR-2016-11-23/pdf/2016-28238.pdf

Sections 3302(c)(2)(A) and 3302(d)(3) of the FUTA provide that employers in a State that has an outstanding balance of advances under Title XII of the Social Security Act at the beginning of January 1 of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax for the calendar year in which the most recent such January 1 occurs, if a balance of advances remains at the beginning of November 10 of that year. Further, section 3302(c)(2)(C) of FUTA provides for an additional credit reduction for a year if a State has outstanding advances on five or more consecutive January firsts and has a balance at the beginning of November 10 for such years. Section 3302(c)(2)(C) also provides for waiver of this additional credit reduction and substitution of the credit reduction provided in section 3302(c)(2)(B) if a state meets certain conditions.

California and Virgin Islands only States with FUTA Increases for 2016

California, Connecticut, Ohio, and the Virgin Islands passed January 1, 2016 with outstanding Title XII advances and were potentially subject to FUTA credit reductions.

California, Ohio, and the Virgin Islands applied for a waiver of the 2016 additional credit reduction under section 3302 (c)(2)(C) of FUTA and it has been determined that each one met all of the criteria of that section necessary to qualify for the waiver of the additional credit reduction. Further, the additional credit reduction of section 3302(c)(2)(B) is zero for these States for 2016.

Therefore, employers in these States will have no additional credit reduction applied for calendar year 2016.

Connecticut and Ohio repaid all of their outstanding advance balances before the beginning of November 10, 2016. Therefore, employers in those States will have no reduction in FUTA offset credit for calendar year 2016.

California and the Virgin Islands will have a credit reduction of 1.8 for calendar year 2016.

These determination were expected, although there was some risk that the requests for waiver might not be approved for California and the Virgin Islands and an even higher FUTA tax increase might be due because of the Benefit Cost Rate review.

A FUTA offset credit reduction of 1.8 means that the FUTA rate in these states will go for 2016 up to 2.4% (approximately $168 per employee) from 0.6% (approximately $42 per employee).