The Unemployment Insurance or UI Trust Fund is primarily financed by employer taxes levied on each states taxable wage base. Additionally, employers pay a Federal Unemployment Tax Act (FUTA). The FUTA rate is 6.2% on the first $7,000 of each employee’s annual wages. If the employer’s state program is in compliance with the federal requirements, they receive a tax rate credit of 5.4% which gives us the .8% rate (or a maximum of $56 per worker) that most employers are familiar with.

State borrowing is permitted against the federal UI fund when they have exhausted their UI reserves. If a state has an outstanding loan balance on January 1 for two consecutive years, the full amount of the loan must be repaid by November 10 of the second year or employers lose .3% of the FUTA credit each year there is an unpaid balance.

What this means to you as the employer

The Government Accountability Office (GAO) reports that UI trust funds nationwide are in historically poor financial condition. Aggregate net reserves are the lowest level in the program’s history. Currently, there are 3 states that will lose some of their credit for 2010; Indiana, Michigan and South Carolina. The rate of credit is reduced each year until the loan is repaid. If you have employees and pay unemployment to these states, you will receive a rate adjustment at the end of 2010 on the annual 940 return resulting in a higher tax rate and an additional payment.

Some states have already raised their rates and/or wage bases and as a result of the increased state UI contributions, do not have outstanding trust fund loan balances. They are Arizona, New Hampshire and Tennessee. These states will not lose any credit for 2010.

You can access updated information on state loans and their balances at the following web site: http://www.workforcesecurity.doleta.gov/unemploy/tax.asp 

Click on the link “Trust Fund Loans” and you can access FUA state loan balances.

Visit the Employment Partners Web page or contact us directly.

LBMC
615-377-4600
info@lbmc.com