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23 January 2018

FUTA credit reduction projected for two jurisdictions in 2018

The US Department of Labor (DOL) has released its preliminary projections of the states that have the potential for a federal unemployment insurance (FUTA) credit reduction for calendar year 2018. The Department's projections include the standard credit reduction and estimated Benefit Cost Rate (BCR) percentages for 2018. (Potential 2018 Federal Unemployment Tax Act (FUTA) Credit Reductions, US Department of Labor, Employment and Training Administration, January 2018.)

The DOL again projects that employers of California and the Virgin Islands will be subject to the FUTA credit reduction in 2018, resulting in higher FUTA taxes this year than last year. It is anticipated that these early rate projections could change over the next several months.

As we previously reported, California anticipates that the federal loan will be repaid in 2018, while the Virgin Islands is expected to continue to carry a loan balance past the November 10, 2018 cut-off date.

Higher FUTA taxes projected due to Benefit Cost Rate add on

The Virgin Islands, which has carried a federal UI loan balance since 2009, is again faced with the potential of both the standard FUTA credit reduction and the BCR add on for 2018. The Virgin Islands can request a waiver of the BCR no later than July 1, 2017, as it has for the past several years.

California is projected to have a zero BCR for 2018.

The US Department of Labor projections of the standard FUTA credit reduction and BCR add-on rate is shown in the chart on the following page.

For more information about the FUTA credit reduction see our special report.

2018 projected FUTA credit reduction states and rates

State

First year of loan

2017 FUTA credit reduction

Net 2017 FUTA rate

Projected 2018 FUTA credit reduction

Projected 2018 BCR add-on1

Projected potential 2018 net FUTA rate

Total estimated 2018 FUTA cost in excess of the standard $42 per employee

California 2

2009

2.1%

2.7%

2.4%

0.0%

3.0%

$168

Virgin Islands

2009

2.1%

2.7%

2.4%

1.1%3

4.1%

$245

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Advisory Services — Employment Tax Advisory
• Debera Salam(713) 750-1591
• Kristie Lowery(704) 331-1884
• Kenneth Hausser(732) 516-4558
• Debbie Spyker(720) 931-4321

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ENDNOTES

1Estimated BCR courtesy of U.S. Department of Labor. The 2.7 add-on could apply if BCR add-on is waived; however, the Department does not anticipate this to be the case for 2017.

2California is expected to repay its federal UI loan in 2018 and avoid the credit reduction.

3The Virgin Islands has requested and received waivers of the BCR for the past several years.

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