The US Department of Labor (DOL) recently updated its projection of the federal unemployment insurance (FUTA) credit reduction for calendar year 2018 for California and the Virgin Islands, the two jurisdictions that still had an outstanding UI loan balance as of January 1, 2018. The Department's projections include the standard credit reduction and estimated Benefit Cost Rate (BCR) percentages for 2018.

As we previously reported, California repaid its federal loan balance earlier this year and is expected to remain solvent as of November 10, 2018, the cut-off date for loan repayment in full to avoid a FUTA credit reduction. (EY Payroll Newsflash Vol. 19, #087, 5-16-2018; California Employer Newsletter, third quarter 2018.)

Virgin Islands BCR estimate increases

The Department has changed the potential 2018 BCR for Virgin Islands to 1.3%, up from the originally projection of 1.1%. The potential BCR for California remains at 0%. (EY Payroll Newsflash Vol. 19, #022, 1-23-2018.)

The Virgin Islands, which has carried a federal UI loan balance since 2009, is again faced with both the standard FUTA credit reduction and the BCR add-on for 2018. Jurisdictions can request a waiver of the BCR no later than July 1, 2018. A DOL representative confirmed that both California and the Virgin Islands requested a waiver of the BCR add-on for 2018, as they have for previous years.

The Department's projection of the standard FUTA credit reduction and BCR add-on rate is shown in the chart on the following page.

As of October 1, 2018, the Department shows the Virgin Islands' outstanding UI loan balance to be $68,590,413. There is no outstanding loan balance shown for California. If the Virgin Islands pays off its loan balance by November 10, 2018 (which is not anticipated), and California does not borrow again by that date, the FUTA rate for the applicable jurisdiction will return to the net minimum rate of 0.6%. The DOL and the IRS will announce the final FUTA credit reductions after the November 10, 2018, cut-off date.

For more information about the FUTA credit reduction and other rates and limits, see the EY US employment tax rates and limits for 2018.

2018 projected FUTA credit reduction states and rates

Legend

(1) Estimated BCR courtesy of U.S. Department of Labor. The 2.7% add-on could apply if the BCR add-on is waived; however, the Department does not anticipate this to be the case for 2018.
(2) California repaid its federal loan balance earlier in 2018 and is anticipated to continue to be solvent through the end of 2018.

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EY Payroll News Flash