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December 2022: FUTA Credit Reductions for California, Connecticut, Illinois, New York, and U.S. Virgin Islands for 2022

01 Dec

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Update Applicable to:
All employers in California, Connecticut, Illinois, New York, and U.S. Virgin Islands.

What happened?
On November 10, 2022, the U.S. Department of Labor (USDOL) announced that California, Connecticut, Illinois, and New York would be subject to Federal Unemployment Tax Act (FUTA) credit reductions for 2022.

The Federal Unemployment Insurance Tax Act (FUTA), Sections 3302(c)(2) and 3302(d)(3), provides that employers in states that have an outstanding balance of advances under Title XII of the Social Security Act at the beginning of January 1 of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax if all advances are not repaid before November 10 of the taxable year. These credit reductions are made from the regular credit reduction of 5.4%. So, while employers in states without a further credit reduction will have a FUTA tax rate of .6% (on the first $7,000 of wages paid) for the year, employers in states with a further credit reduction due to an outstanding balance of advances will incur a FUTA tax rate of .6% + FUTA credit reduction.

In addition, following the third and fifth January 1st with an outstanding Federal advance, employers in those states are potentially subject to additional credit reductions as outlined in FUTA Sections 3302(c)(2).

Tables are provided for the actual credit reductions that have been applied historically. Because the final credit reduction for any given year is not determined until Nov. 10 of that year, a list of potential credit reductions is provided for the current year when applicable.

If you have any questions or desire further information, please contact Kevin Stapleton (Stapleton.Kevin@dol.gov) or Dyana Cornell (Cornell.Dyana@dol.gov) at the Division of Fiscal and Actuarial Services.

For more information, please see the links below:

FUTA Credit Reductions

Federal Unemployment Tax Act

Federal Register Article

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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