Three States, Virgin Islands May Face Credit Reduction for 2024

The U.S. Department of Labor (DOL) released its list of potential FUTA credit reduction states for 2024 [DOL, Potential 2023 Federal Unemployment Tax Act (FUTA) Credit Reductions, 1-2-24]. California, Connecticut, New York, and the Virgin Islands face a potential credit reduction for 2024. The determination will be made after November 10, 2024.

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 consecutive year a state has an outstanding loan balance on January 1, 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.

Potential Credit Reductions for 2024

California and New York have a credit reduction of 0.6% for 2023 and may have a credit reduction of 0.9% for 2024.

Connecticut paid off its outstanding loan balance by the November 10, 2023, deadline and was not subject to a credit reduction for 2023. However, Connecticut resumed borrowing and had an outstanding loan balance on January 1, 2024. Because it had outstanding loans on three consecutive January 1 (in 2022, 2023, and 2024), it is subject to a potential credit reduction of 0.9% for 2024. If Connecticut pays off its loan by November 10, 2024, it will not be subject to a credit reduction for 2024.

The Virgin Islands began borrowing in August 2009, has a current outstanding loan balance of $87,510,622.10, and might be subject to a credit reduction of 5% for 2024.

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