© 2020 American Payroll Institute, Inc. Virgin Islands Faces FUTA Credit Reduction for 2020 AU.S. ccording to the U.S. Department of Labor (DOL), the Virgin Islands could not pay its federal loans by the November 10, 2020, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2020. It will have a credit reduction of 3.0% for 2020 [DOL, Final 2020 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-10-20 (click on “Final 2020 FUTA Credit Reductions”)]. It was also subject to a credit reduction for 2020 (see PAYSTATE UPDATE, Issue 23, Vol. 21). Federal Form 940, Schedule A will reflect reduction The additional FUTA tax must be deposited by the due date of the 2020 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due February 1, 2021 (because January 31, 2021, is a Sunday). The 2020 Schedule A (Form 940) will contain the official list of credit reduction states/territories, and the credit reduction total from Schedule A is reported on Form 940. When they are finalized, both forms will be available on the Internal Revenue Service website and on the APA website. To find the forms on the APA 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.” 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 Federal Unemployment Account (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). For each additional year the loan remains unpaid, an additional credit reduction of 0.3% is taken. SUI loan balances As of November 16, 2020, these 20 states had outstanding FUA loans (in addition to the Virgin Islands) totaling $41,130,049,053.60: California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Ohio, Pennsylvania, Texas, Virginia, and West Virginia. Last year, at roughly the same time, only the Virgin Islands had an outstanding FUA loan and the balance was $63,304,933.09. This year, it has a balance of $80,108,748.15, indicating the Virgin Islands, like many states, has had to take out additional FUA loans to pay increased UI benefits due to the COVID-19 pandemic. The DOL maintains information on the states and territories that have current FUA loan balances. Note: Only the U.S. Virgin Islands faces a credit reduction for this year. The states listed above are not subject to a FUTA credit reduction for 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. It is also possible that federal relief could impact future credit reductions (see the article “APA Asks Congress to Act on COVID-19-Related UI Taxes” on page 2 for more information). Virgin Islands 3.0% credit reduction, no add-on The Virgin Islands had a credit reduction in each of the past nine years (2011–2019) and, therefore, has a credit reduction of 3.0% for 2020. Once a state/territory has had outstanding FUA loans for several years, additional types of credit reduction might also be added, including an additional 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 applied for a waiver of the BCR add-on from the DOL by the deadline and the request was granted (see PAYSTATE UPDATE, Issue 17, Vol. 21). Washington Supreme Court Rules Dairy Workers Entitled to Overtime Pay TareWashington he Supreme Court ruled dairy workers entitled to overtime pay under state law and determined the agricultural exemption from the overtime provision of the state minimum wage law is unconstitutional. The court ordered the employer to pay unpaid overtime to the entire class of 300 workers for work performed during the time period covered by the lawsuit and also ordered it to pay the dairy workers’ attorneys’ fees [Martinez-Cuevas v. DeRuyter Bros Dairy, Inc., No. 96267-7 (Wash., 11-5-20)]. November 23, 2020 Volume 22 Issue 23
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