02 November 2021 Federal unemployment tax (FUTA) credit reduction outlook for 2021 and beyond; September 2021 jobless rate decreased The U.S. Department of Labor (USDOL) released an updated FUTA credit reduction estimate for calendar year 2021 (reported on the 2021 Form 940) which continues to show that the Virgin Islands is the only jurisdiction with the potential of a FUTA credit reduction for 2021, assuming it continues to have an unpaid federal unemployment insurance (UI) loan balance on November 10, 2021. On October 28, 2021, Treasury Direct showed that the Virgin Islands had a UI loan balance of $95,663,394.51. Other jurisdictions that began accepting federal UI loans in 2020 and that fail to repay their loan balances by November 10, 2022, run the risk of a FUTA credit reduction of 0.3% for calendar year 2022 (reported on the 2022 Form 940). If the territory's federal UI loan is still outstanding on November 10, 2021, Virgin Islands employers will pay, at a minimum, a FUTA tax rate for calendar year 2021 of 3.9%, composed of a FUTA credit reduction rate of 3.3% and the 0.6% minimum FUTA tax rate. Virgin Island employers also have the potential of an additional FUTA credit reduction for 2021, the Benefit Cost Rate (BCR). As in previous years, the territory requested a waiver of the BCR for 2021. If approved (as has been the case for several years), an additional potential FUTA credit reduction of 0.3% will be avoided. If the waiver request is not approved, Virgin Islands' employers will potentially pay their 2021 FUTA taxes at a rate of 4.2%. (Email response to inquiry, US DOL representative, 10-29-2021.) The additional FUTA taxes would be used to pay down Virgin Islands' federal UI loan balance. The increased 2021 FUTA taxes would be due from Virgin Islands employers with their fourth quarter 2021 FUTA tax deposit (Form 940), due February 1, 2022.
1 BCR courtesy of the USDOL. The 2.7 (not a percentage) add-oncould applyifthe BCR add-onis waived; however, this is not expected to be the case for 2021. A total of 22 jurisdictions were approved in 2020 to receive federal UI loans (California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Texas, Virginia, the Virgin Islands and West Virginia) when their trust fund balances became insolvent.Approximately half of these states repaid their federal UI loan balances throughout 2020 and 2021. The remaining 10 states with a federal UI loan balance in 2021 run the risk of a FUTA credit reduction in 2022 unless their loans are repaid by November 10, 2022. Hawaii and West Virginia currently have no loan balance but are authorized to borrow again if needed. Under the American Rescue Plan Act (ARPA) (P.L. 117-2), interest on federal UI loans starting in 2020 began to accrue as of September 7, 2021 (extended from January 1, 2020, by the FFCRA (P.L. 116-127)andfrom March 16, 2021, under the Appropriations Act (P.L.116-260). Interest was due for fiscal year 2021 for the period of September 7, 2021 through September 30, 2021.Although most states that previously accepted federal UI loans passed the interest cost on to employers in the form of additional UI interest surcharges, many of the states that incurred federal interest charges in 2021 have not required employers to bear that cost. This is expected to change starting in 2022. (See U.S. Department of Labor Program Letter No.14-21.) Below is a chart showing the states with a federal UI loan balance as of October 28, 2021 and whether employers were subject in 2021 to a state UI interest assessment.
The U.S. Bureau of Labor Statistics reports that the national rate of unemployment decreased to 4.8% for September 2021, down from 5.2% for August 2021. Total nonfarm payroll increased by 194,000 in September 2021. (USDL-21-1799, the employment situation for September 2021.) At the start of the pandemic, the national rate of unemployment was 3.5% for February 2020 and 4.4% for March 2020. (Historical Employment Situation reports may be found here.)
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