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

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