© 2021 American Payroll Institute, Inc. Virgin Islands Subject to FUTA Credit Reduction for 2021, More States May Be Added for 2022 According to the U.S. Department of Labor (DOL), the U.S. Virgin Islands could not pay its federal loans by the November 10, 2021, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2021. It will have a credit reduction of 3.3% for 2021 [DOL, Final 2021 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-10-21]. The Virgin Islands had a credit reduction in each of the past 10 years (2011–2020). Federal Form 940, Schedule A will reflect reduction The additional FUTA tax must be deposited by the due date of the 2021 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due January 31, 2022. The 2021 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 19, 2021, the following 10 states had outstanding FUA loans (in addition to the Virgin Islands) totaling $44,560,061,215.92: California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and Texas. Last year, at roughly the same time, 20 states had outstanding loans, but the following 10 states have paid off FUA loan balances: Delaware, Georgia, Hawaii, Indiana, Kentucky, Louisiana, New Mexico, Ohio, Virginia, and West Virginia. 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 with outstanding loan balances are not subject to a FUTA credit reduction for 2021. These states could face potential FUTA credit reductions for 2022 if the FUA loans that were taken out in 2020 are not paid by November 10, 2022. It is also possible that federal relief could impact future credit reductions. Virgin Islands 3.3% credit reduction, no add-on The Virgin Islands had a credit reduction in each of the past 10 years (2011–2020) and, therefore, has a credit reduction of 3.3% for 2021. 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. 22). Recently Announced Local California Minimum Wage Rates for 2022 As the end of the year approaches, local jurisdictions in California continue to announce minimum wage rates for 2022 based on adjustments for inflation (this updates APA’s 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 APA’s Guide to State Payroll Laws, §7.1). For the updated notice (where available), click on the relevant 2022 minimum wage rate. The name of the locality is linked to the applicable agency webpage. The following chart also provides the state minimum wage rate, for comparison. November 29, 2021 Volume 23 Issue 23
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