Four States, Virgin Islands May Face Increased FUTA Credit Reduction for 2023

The U.S. Department of Labor (DOL) released its list of potential FUTA credit reduction states for 2023 [DOL, Potential 2023 Federal Unemployment Tax Act (FUTA) Credit Reductions, 1-18-23]. These states already have a credit reduction of 0.3% for 2022 and may face a credit reduction of 0.6% for 2023: California, Connecticut, Illinois, and New York. The U.S. Virgin Islands also faces a potential credit reduction of 4.8%. The determination will be made after November 10, 2023.

States With Outstanding Loans

If states have an outstanding Federal Unemployment Account (FUA) loan on January 1 of at least two consecutive years and on November 10 of the second year, they are subject to a credit reduction on their Federal Unemployment Tax rate until the loan 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.

Illinois Repays Loan

On January 25, Illinois Gov. J.B. Pritzker and the Illinois Department of Employment Security announced that the state officially repaid its remaining FUA trust fund loan. This means that the state will likely not face a credit reduction for 2023 unless it borrows again and has a loan balance on November 10, 2023 [Office of Gov. J.B. Pritzker, Press Release, 1-25-23]. The DOL likely will remove Illinois from the outstanding FUA loan balance chart in the future.

Interested in more state and local payroll coverage? APA’s PayState Update eNewsletter is perfect for you.

Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for the APA.