09 August 2016 Ohio law authorizes repayment of federal UI loan by September 30, 2016, FUTA credit reduction to be avoided As we previously reported, recently-enacted HB 390 (Chapter 131) directs the Ohio Department of Job and Family Services (ODJFS ) to repay the state's outstanding federal unemployment insurance (UI) loan by September 30, 2016 through a loan from the state Department of Commerce's unclaimed funds reserve. According to a senior ODJFS tax representative, while the deadline for loan repayment is September 30, 2016, the precise payoff date is not yet known. Repayment of the loan before November 10, 2016 will return the state's employers to the normal FUTA rate, which foremost is 0.6%. The loan repayment date is one year earlier than projected by state officials. Employers will be required to pay an additional state surcharge, percentage to be determined, beginning January 1, 2017, to repay the state loan amount. The legislation requires that this one-time loan be repaid to the Department of Commerce by February 28, 2018. The bill further calls for the legislature to adopt long-term reforms to the state UI system to shore up the unemployment trust fund balance and avoid long-term borrowing in the future. According to the US Department of Labor website, as of August 3, 2016, Ohio has an outstanding federal UI loan balance of $274,068,877. Ohio's trust fund became insolvent on January 12, 2009 and the state started borrowing from the federal government to continue to pay UI benefits. Ohio has borrowed a total of $3.39 billion over the life of the loan. ODJFS officials projected that the federal UI loan would have been repaid through normal state UI tax collections by 2017. As a result of the outstanding federal loan, Ohio employers saw FUTA credit reductions for calendar years 2011-2015. The FUTA credit reduction was 1.5% for calendar year 2015, resulting in a net FUTA rate of 2.1%. If the federal loan is not repaid by November 10, 2016, the FUTA rate for calendar year 2016 will increase to at least 2.4%. Repayment of the loan by November 10, 2016 would reduce the FUTA rate for calendar year 2016 to 0.6%. Ohio employers were spared even higher FUTA costs for 2014 and 2015 that would have occurred through the addition of the Benefit Cost Rate (BCR) factor. The BCR could have triggered on because the state was in its fifth and sixth years of carrying a federal loan balance. Ohio successfully requested and received a waiver of the BCR for 2014 and 2015. The US Department of Labor estimates that the BCR would be an additional 0.3% for calendar year 2016 (if the state does not receive a waiver again for 2016). The ODJFS estimates that calendar year FUTA taxes will be reduced by approximately $500 million if the federal loan is repaid this year. Some of this savings would be reduced by the employer surcharge to repay the state loan. The legislation provides that employers will be required to repay the state loan through an additional surcharge, the percentage to be determined, presumably paid quarterly with normal state UI taxes. The state has been paying the federal interest charges on the current UI loan from the state's general fund. If the debt is paid off by November 2016, the state could save approximately $30 million in interest payments. If borrowing is necessary in the future and results in a FUTA credit reduction, the bill calls for the ODJFS to increase the employer state UI contribution rates by up to 0.5% for the purpose of paying back the loan. Additionally, the ODJFS would be required to assess a surcharge on employers to cover the cost of any federal interest. The bill further calls for the legislature to adopt long-term reforms to the state UI system to shore up the unemployment trust fund balance and avoid long-term borrowing in the future. HB 394, introduced in November 2015, is expected to be reworked and considered for this purpose. Currently, the states of California and Ohio, and the Virgin Island have outstanding federal UI loan balances.
Document ID: 2016-1371 | ||||||||||||||||||||
