Employers in 3 states will be required to pay more in Federal Unemployment for 2010, with potentially an additional 21 states following suit in 2011. Employers with business in Michigan, Indiana and South Carolina will have additional taxes added to their 2010 Federal Unemployment Report 940. These states’ unemployment funds borrowed money from the federal unemployment fund and did not pay the loan back with in required time.
A state that borrows money from the federal account has until the end of the following year to pay back the loan in order to avoid additional FUTA taxes being charged to their employers. However, the state has until November 10th of the year the tax increase will take effect to pay back the loan and avoid the increase. This additional time to pay will make it hard for employers in the 21 additional states with potential loan repayment problems to know exactly how much their FUTA tax will be for the year. Employers will not know how much liability to book for the current year or may have to reserve amounts of cash, limiting investment and business development, not knowing if the tax is due until November or December of that year. For every year a loan remains unpaid the FUTA tax rate increases by 0.3%.
As of November, 2010, over $41 billion have been loaned to 31 states and the US Virgin Islands. Employers in 3 states are currently affected with a potential 21 being added for the 2011 tax year and an additional 7 for 2012. A list of the states that have borrowed funds with amounts and date the loan can be found here.
Please contact StaffScapes with any questions or to discuss further ramifications of the unemployment account fund status.