© 2024 American Payroll Institute, Inc.
November 25, 2024 Volume 26 Issue 23
California, New York, and Virgin Islands
Subject to Credit Reduction for 2024
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, 2024, deadline
and will lose the full Federal Unemployment Tax Act (FUTA)
credit for 2024 [DOL, Final 2024 Federal Unemployment Tax
Act (FUTA) Credit Reductions, rev. 11-12-24].
For 2024, California and New York are subject to a FUTA
credit reduction of 0.9%, and the Virgin Islands is subject
to a FUTA credit reduction of 4.2%. The Virgin Islands had a
credit reduction in each of the past 13 years (2011-2023 see
PAYSTATE UPDATE, Issue 23, Vol. 25).
Connecticut paid off loans
In January, the DOL released its list of potential FUTA
credit reduction states for 2024, including: California,
Connecticut, New York, and the Virgin Islands (see PAYSTATE
UPDATE, Issue 2, Vol. 26). Connecticut was not subject to
a credit reduction in 2023. However, Connecticut had an
outstanding loan balance on three consecutive January 1 (in
2022, 2023, and 2024). Therefore, it could have faced a credit
reduction for 2024.
On November 12, Connecticut Gov. Ned Lamont and
the Connecticut Labor Commissioner announced that the
state officially repaid its remaining federal unemployment
account (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,
11-12-24]. Since Connecticut paid off its outstanding loans
by the November 10 deadline, it is not subject to a credit
reduction for 2024.
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 2 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 was facing a BCR add-on of 0.9% for
2024. However, the Virgin Islands’ waiver request for 2024 was
granted and it is not subject to add-on for 2024.
Form 940, Schedule A will reflect reduction
The additional FUTA tax must be deposited by the due
date of the 2024 federal Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return, which is January 31, 2025.
The 2024 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 2024 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 2025
As of November 15, California and New York continued
to have outstanding loan balances (in addition to the Virgin
Islands). These states and territory will face an increased
credit reduction for 2025 if outstanding loans are not repaid
by November 10, 2025. Last year, at approximately the same
time, two states and the Virgin Islands had outstanding
loan balances (down from 20 states in 2020). If Connecticut
resumes borrowing and has an outstanding loan on January
1, 2025, the DOL will consider Connecticut a potential credit
reduction state for 2025.
Learn About the Results of State and Local Ballot Measures on Election Day
The November 5 general election saw many state ballot
proposals related to minimum wage and paid sick leave
(PSL) (see PAYSTATE UPDATE, Issue 17, Vol. 26). Proposals
in Alaska, Missouri, and Nebraska passed, creating PSL
November 25, 2024 Volume 26 Issue 23
California, New York, and Virgin Islands
Subject to Credit Reduction for 2024
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, 2024, deadline
and will lose the full Federal Unemployment Tax Act (FUTA)
credit for 2024 [DOL, Final 2024 Federal Unemployment Tax
Act (FUTA) Credit Reductions, rev. 11-12-24].
For 2024, California and New York are subject to a FUTA
credit reduction of 0.9%, and the Virgin Islands is subject
to a FUTA credit reduction of 4.2%. The Virgin Islands had a
credit reduction in each of the past 13 years (2011-2023 see
PAYSTATE UPDATE, Issue 23, Vol. 25).
Connecticut paid off loans
In January, the DOL released its list of potential FUTA
credit reduction states for 2024, including: California,
Connecticut, New York, and the Virgin Islands (see PAYSTATE
UPDATE, Issue 2, Vol. 26). Connecticut was not subject to
a credit reduction in 2023. However, Connecticut had an
outstanding loan balance on three consecutive January 1 (in
2022, 2023, and 2024). Therefore, it could have faced a credit
reduction for 2024.
On November 12, Connecticut Gov. Ned Lamont and
the Connecticut Labor Commissioner announced that the
state officially repaid its remaining federal unemployment
account (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,
11-12-24]. Since Connecticut paid off its outstanding loans
by the November 10 deadline, it is not subject to a credit
reduction for 2024.
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 2 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 was facing a BCR add-on of 0.9% for
2024. However, the Virgin Islands’ waiver request for 2024 was
granted and it is not subject to add-on for 2024.
Form 940, Schedule A will reflect reduction
The additional FUTA tax must be deposited by the due
date of the 2024 federal Form 940, Employer’s Annual Federal
Unemployment (FUTA) Tax Return, which is January 31, 2025.
The 2024 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 2024 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 2025
As of November 15, California and New York continued
to have outstanding loan balances (in addition to the Virgin
Islands). These states and territory will face an increased
credit reduction for 2025 if outstanding loans are not repaid
by November 10, 2025. Last year, at approximately the same
time, two states and the Virgin Islands had outstanding
loan balances (down from 20 states in 2020). If Connecticut
resumes borrowing and has an outstanding loan on January
1, 2025, the DOL will consider Connecticut a potential credit
reduction state for 2025.
Learn About the Results of State and Local Ballot Measures on Election Day
The November 5 general election saw many state ballot
proposals related to minimum wage and paid sick leave
(PSL) (see PAYSTATE UPDATE, Issue 17, Vol. 26). Proposals
in Alaska, Missouri, and Nebraska passed, creating PSL
