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November 2, 2021
2021-1997

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).

2021 FUTA credit reduction for the Virgin Islands

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.

State

First year of loan

2020 FUTA credit reduction

Net 2020 FUTA rate

Projected 2021 FUTA credit reduction

2021 Benefit Cost Rate (BCR) add-on1

Final 2021 FUTA rate (projected)

Virgin Islands

2009

3.0%

3.6%

3.3%

0.3%

4.2%

Legend

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.

FUTA credit reduction outlook for 2022 and beyond

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.

States with outstanding federal UI loan balances as of October 28, 2021

Jurisdiction

Federal UI loan balance

Jurisdiction charged a federal UI interest assessment in 2021

California

$19,666,350,212

No, costs paid by the state under fiscal year 2022 budget

Colorado

$1,014,167,919

No, federal Coronavirus Relief Funds (CRF) used

Connecticut

$532,241,928

No, state general funds used

Hawaii

$0 (authorized to borrow more if needed)

No, state general funds used

Illinois

$4,448,493,506

No, covered in fiscal year 2022 budget

Massachusetts

$2,268,015,460

Yes, 0.1%-0.76%; however, $1 billion in state surplus funds was dedicated to the state's UI trust fund and, according to an administration news release, would result in employer UI tax relief, as provided for under supplemental fiscal year 2021 budget legislation (H 4200)

Minnesota

$1,125,273,812

Yes, base state unemployment insurance tax rate + 0.1% x 4%

New Jersey

$580,171,820

No, paid by the state's unemployment compensation auxiliary fund

New York

$9,282,285,004

No, the state was approved by the US Department of Labor to defer three-fourths of the interest due for 2021 to future years, and the one-fourth due for 2021 was paid by state general funds

Pennsylvania

$878,029,369

No, interest tax factor portion of state unemployment insurance tax rate was removed for 2021 and 2022

Texas

$5,907,922,212

Yes, 0.03%

Virgin Islands

$95,663,395

Yes, $25 per employee

West Virginia

$0 (authorized to borrow more if needed)

 

September 2021 total nonfarm payroll increased slightly; jobless rate decreased

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.)

Following are national jobless rates for the months following March 2020:

Month

Jobless rate

April 2020

14.8%

May 2020

13.3%

June 2020

11.1%

July 2020

10.2%

August 2020

8.4%

September 2020

7.9%

October 2020

6.9%

November 2020

6.7%

December 2020

6.7%

January 2021

6.3%

February 2021

6.2%

March 2021

6.0%

April 2021

6.1%

May 2021

5.8%

June 2021

5.9%

July 2021

5.4%

August 2021

5.2%

September 2021

4.8%

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Contact Information
For additional information concerning this Alert, please contact:
 
Workforce Tax Services - Employment Tax Advisory Services
   • Kristie Lowery (kristie.lowery@ey.com)
   • Kenneth Hausser (kenneth.hausser@ey.com)
   • Debera Salam (debera.salam@ey.com)

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