© 2023 American Payroll Institute, Inc.
California, New York, and Virgin Islands
Subject to Credit Reduction for 2023
According to the U.S. Department of Labor (DOL),
California, New York, and the U.S. Virgin Islands did not pay
back their federal loans by the November 10, 2023, deadline
and will lose the full Federal Unemployment Tax Act (FUTA)
credit for 2023 [DOL, Final 2023 Federal Unemployment Tax
Act (FUTA) Credit Reductions, rev. 11-13-23].
For 2023, California and New York are subject to a FUTA
credit reduction of 0.6%, and the Virgin Islands is subject
to a FUTA credit reduction of 3.9%. The Virgin Islands had a
credit reduction in each of the past 12 years (2011-2022 see
PAYSTATE UPDATE, Issue 23, Vol. 24).
Two states paid off loans
In January, the DOL released its list of potential FUTA
credit reduction states for 2023, including: California,
Connecticut, Illinois, New York, and the Virgin Islands (see
PAYSTATE UPDATE, Issue 3, Vol. 25).
On January 25, Illinois Gov. J.B. Pritzker and the Illinois
Department of Employment Security announced that the
state officially repaid its remaining federal unemployment
account (FUA) trust fund loan [Office of Gov. J.B. Pritzker,
Press Release, 1-25-23]. On November 8, Connecticut Gov.
Ned Lamont and the Connecticut Labor Commissioner
announced that the state officially repaid its remaining
FUA trust fund loan. According to the governor and labor
commissioner, the state will likely borrow additional money
in future years but will achieve trust fund solvency in the
future [Office of Gov. Ned Lamont, Press Release, 11-8-23].
Both states paid off their outstanding loans by November 10,
2023, and did not have an outstanding balance on that date.
Therefore, the states are not subject to a credit reduction for
2023.
Credit reductions because of state loans
Under the joint federal/state unemployment insurance
(UI) system, states with a high rate of unemployment and
difficulty meeting their benefit obligations can borrow
money from the FUA to pay benefits. If states have loan
balances on January 1 of at least two consecutive years and
on November 10 of the second year, the FUTA credits for
employers in those states are reduced, with the extra FUTA
tax paid being applied against each state’s loan balance (see
The Payroll Source®, §7.1-6).
A state with an outstanding loan can avoid a credit
reduction for its employers by repaying all outstanding
loans by November 10 of the year the reduction is scheduled
to take effect. If the loan is not repaid by that date, a credit
reduction of 0.3% goes into effect, with employers in
that state having their maximum credit reduced to 5.1%
(5.4%–0.3%). The extra 0.3% in FUTA tax means that
employers will have to pay an extra $21 per employee (0.3%
of the federal wage base of $7,000). An additional credit
reduction of 0.3% is taken for each additional year the loan
remains unpaid.
Once a state/territory has had outstanding FUA loan
balances for several years, additional types of credit reduction
also might be added, including a 2.7% add-on and/or a
Benefit Cost Rate (BCR) add-on. States/territories may apply
to the DOL for a waiver of the BCR by July 1 of a tax year.
The Virgin Islands’ waiver request for 2022 was granted (see
PAYSTATE UPDATE, Issue 13, Vol. 25).
Form 940, Schedule A will reflect reduction
The additional FUTA tax must be deposited by the due
date of the 2023 federal Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return, which is January 31, 2024.
The 2023 Schedule A (Form 940), Multi-State Employer and
Credit Reduction Information, will contain the official list of
credit reduction states, and the credit reduction total from
Schedule A is reported on Form 940. The IRS has not released
the 2023 Form 940 yet. When they are finalized, both forms
will be available on the IRS website and on the PayrollOrg
website. To find the forms on the PayrollOrg website, select
“News &Resources,” then “Resource Library.” Once in the
Resource Library, check the box on the left side of the screen
for “IRS Forms.”
Outlook for 2024
As of November 14, California and New York continued
to have outstanding loan balances (in addition to the Virgin
Islands). These states will face an increased credit reduction
for 2024 if outstanding loans are not repaid by November 10,
2024. Last year, at approximately the same time, four states had
outstanding loan balances (down from 20 states in 2020).
Local California Minimum Wage Rate Updates for 2024
As the end of the year approaches, local jurisdictions
in California continue to announce minimum wage
rates for 2024 based on adjustments for inflation (this
updates Guide to State Payroll Laws, §1.1). Remember in
California – in addition to wage and hour issues – changes
to local minimum wage rates impact the calculation of the
maximum amount that can be garnished under creditor
garnishments when applicable (see Guide to State Payroll
November 27, 2023 Volume 25 Issue 23
California, New York, and Virgin Islands
Subject to Credit Reduction for 2023
According to the U.S. Department of Labor (DOL),
California, New York, and the U.S. Virgin Islands did not pay
back their federal loans by the November 10, 2023, deadline
and will lose the full Federal Unemployment Tax Act (FUTA)
credit for 2023 [DOL, Final 2023 Federal Unemployment Tax
Act (FUTA) Credit Reductions, rev. 11-13-23].
For 2023, California and New York are subject to a FUTA
credit reduction of 0.6%, and the Virgin Islands is subject
to a FUTA credit reduction of 3.9%. The Virgin Islands had a
credit reduction in each of the past 12 years (2011-2022 see
PAYSTATE UPDATE, Issue 23, Vol. 24).
Two states paid off loans
In January, the DOL released its list of potential FUTA
credit reduction states for 2023, including: California,
Connecticut, Illinois, New York, and the Virgin Islands (see
PAYSTATE UPDATE, Issue 3, Vol. 25).
On January 25, Illinois Gov. J.B. Pritzker and the Illinois
Department of Employment Security announced that the
state officially repaid its remaining federal unemployment
account (FUA) trust fund loan [Office of Gov. J.B. Pritzker,
Press Release, 1-25-23]. On November 8, Connecticut Gov.
Ned Lamont and the Connecticut Labor Commissioner
announced that the state officially repaid its remaining
FUA trust fund loan. According to the governor and labor
commissioner, the state will likely borrow additional money
in future years but will achieve trust fund solvency in the
future [Office of Gov. Ned Lamont, Press Release, 11-8-23].
Both states paid off their outstanding loans by November 10,
2023, and did not have an outstanding balance on that date.
Therefore, the states are not subject to a credit reduction for
2023.
Credit reductions because of state loans
Under the joint federal/state unemployment insurance
(UI) system, states with a high rate of unemployment and
difficulty meeting their benefit obligations can borrow
money from the FUA to pay benefits. If states have loan
balances on January 1 of at least two consecutive years and
on November 10 of the second year, the FUTA credits for
employers in those states are reduced, with the extra FUTA
tax paid being applied against each state’s loan balance (see
The Payroll Source®, §7.1-6).
A state with an outstanding loan can avoid a credit
reduction for its employers by repaying all outstanding
loans by November 10 of the year the reduction is scheduled
to take effect. If the loan is not repaid by that date, a credit
reduction of 0.3% goes into effect, with employers in
that state having their maximum credit reduced to 5.1%
(5.4%–0.3%). The extra 0.3% in FUTA tax means that
employers will have to pay an extra $21 per employee (0.3%
of the federal wage base of $7,000). An additional credit
reduction of 0.3% is taken for each additional year the loan
remains unpaid.
Once a state/territory has had outstanding FUA loan
balances for several years, additional types of credit reduction
also might be added, including a 2.7% add-on and/or a
Benefit Cost Rate (BCR) add-on. States/territories may apply
to the DOL for a waiver of the BCR by July 1 of a tax year.
The Virgin Islands’ waiver request for 2022 was granted (see
PAYSTATE UPDATE, Issue 13, Vol. 25).
Form 940, Schedule A will reflect reduction
The additional FUTA tax must be deposited by the due
date of the 2023 federal Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return, which is January 31, 2024.
The 2023 Schedule A (Form 940), Multi-State Employer and
Credit Reduction Information, will contain the official list of
credit reduction states, and the credit reduction total from
Schedule A is reported on Form 940. The IRS has not released
the 2023 Form 940 yet. When they are finalized, both forms
will be available on the IRS website and on the PayrollOrg
website. To find the forms on the PayrollOrg website, select
“News &Resources,” then “Resource Library.” Once in the
Resource Library, check the box on the left side of the screen
for “IRS Forms.”
Outlook for 2024
As of November 14, California and New York continued
to have outstanding loan balances (in addition to the Virgin
Islands). These states will face an increased credit reduction
for 2024 if outstanding loans are not repaid by November 10,
2024. Last year, at approximately the same time, four states had
outstanding loan balances (down from 20 states in 2020).
Local California Minimum Wage Rate Updates for 2024
As the end of the year approaches, local jurisdictions
in California continue to announce minimum wage
rates for 2024 based on adjustments for inflation (this
updates Guide to State Payroll Laws, §1.1). Remember in
California – in addition to wage and hour issues – changes
to local minimum wage rates impact the calculation of the
maximum amount that can be garnished under creditor
garnishments when applicable (see Guide to State Payroll
November 27, 2023 Volume 25 Issue 23
