© 2020 American Payroll Institute, Inc. Virgin Islands Still Faces Potential FUTA Credit Reduction for 2020 TlistU.S.potential he Department of Labor (DOL) released its updated of FUTA credit reduction states for 2020 [DOL, Potential 2020 FUTA Credit Reductions, rev. 8-11-20]. The Virgin Islands continues to have an outstanding Federal Unemployment Account (FUA) loan, and, therefore, might be subject to a FUTA credit reduction of 3.7% for 2020. The territory was subject to a credit reduction for 2019 (see PAYSTATE UPDATE, Issue 23, Vol. 21). The 2020 determination will be made after the loan due date of November 10, 2020. Note that the potential Benefit Cost Rate (BCR) add-on has been increased since the initial projections were released in January (see PAYSTATE UPDATE, Issue 3, Vol. 22). Outstanding loans If states have outstanding loans on January 1 of two consecutive years and have not paid off the balance by November 10, they are subject to a credit reduction on their Federal Unemployment Tax rate until the balance has been paid off. Each year a loan continues to be unpaid, the credit reduction increases by 0.3%, though states that have made an effort to keep their balances in check have some opportunities to avoid the reduction (see The Payroll Source®, §7.1-6). Several additional states have taken out FUA loans in 2020, due to a record number of people applying for unemployment insurance (UI) benefits because of the COVID- 19 pandemic (see PAYSTATE UPDATE, Issue 11, Vol. 22). The DOL maintains information on the states and territories that have current FUA loan balances (see chart below). These states will not be subject to a potential FUTA credit reduction in 2020, as the FUA loans are “new” this year. These states could face potential FUTA credit reductions in future years, if the FUA loans are not paid off. Virgin Islands applied for BCR add-on waiver Once a state has had outstanding FUA loans for several years, additional types of credit reduction might also be added, including a 2.7% add-on and/or a BCR add-on. States may apply to the DOL for a waiver of the BCR add-on by July 1 of a tax year. The Virgin Islands applied for the BCR add-on waiver for 2020 by the July 1, 2020, deadline. The updated list from DOL reflects the updated amount of the BCR add-on (increased from 0.3% to 0.7%) and the amount of the potential total credit reduction for 2020 (see chart below). Potential 2020 FUTA credit reduction and updated state loan balances Below is the current FUA loan balance, basic reduction, BCR add-on, and potential total credit reduction for the Virgin Islands for 2020. Also included in the chart are an updated list of states with outstanding FUA loan balances. State/Territory Outstanding Loan Amount as of 8-26-20 Basic Reduction BCR Add-on Potential Total Credit Reduction for 2020 California $10,000,034,279.83 N/A N/A N/A Colorado $78,557,613.08 N/A N/A N/A Hawaii $275,990,172.13 N/A N/A N/A Illinois $1,483,968,121.99 N/A N/A N/A Kentucky $266,121,714.54 N/A N/A N/A Massachusetts $1,154,488,411.36 N/A N/A N/A Minnesota $323,488,677.52 N/A N/A N/A New Jersey $30,588,000.00 N/A N/A N/A New York $6,480,349,071.78 N/A N/A N/A Ohio $741,682,473.34 N/A N/A N/A Texas $3,638,670,059.18 N/A N/A N/A Virgin Islands $60,339,765.51 3.0% 0.7% 3.7% West Virginia $49,937,854.39 N/A N/A N/A August 31, 2020 Volume 22 Issue 17
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