In our March issue, we discussed the BCR (Benefit Cost Ratio) that could be added to the employer’s FUTA tax rate.  The BCR is an additional tax that is added to the FUTA tax rate in states that hold an outstanding loan balance (under the Title XII loan provision) as the third January 1 passes.   The amount of the BCR varies from state to state due to the complicated formula.
A simplistic example would be, to sum up, the total benefits paid from 2008 – 2012 and divide it by five.   The result is then divided by the 2013 taxable wages of the state.     Shown below is the formula as issued by the Department of Labor, which is more complicated than our example.

[(2.7% X 7000/US AAW)-ST ATR_tot] X (ST AAW/7000)

We have put together a list of the Estimated BCR and the total FUTA rates that could be in place for 2014 and due with the final filing of the Federal Form 940 on January 31, 2015.   We anticipate all states with the exception of California and the Virgin Islands to request a waiver, which should be submitted by July 1, 2014.  We believe most states will try to avoid the additional BCR.   The BCR add on is designed to help the states repay their Tittle XII loan more expediently.   A conservative approach, from a FUTA tax perspective, would be to accrue at the higher rate and then adjust the rate as approval of the BCR is provided by the Department of Labor.

Noma May Chart 1

We are also providing you with the most recent list of Title XII loan balances and the date the state began borrowing.    New Jersey recently repaid their loan, and if they do not borrow before December 31, 2014, they will not lose their FUTA tax credit reduction or have a BCR add on.    Please keep in mind that each state has until November 10, 2014, to repay their outstanding loan.   If any state repays their loan before November 10t h, the FUTA credit reduction and the BCR would be removed.

Norma May Chart 2

We will continue to provide updates as the DOL provides approvals for the waivers.   All of the states listed above will need to pay interest on their loans by September 30, 2014.   The money to pay the loans is usually provided through a surcharge or assessment.   California borrows from the disability fund to pay their interest.  If a state does not meet their interest payment on September 30, the employer of that state could lose their entire FUTA credit reduction of 5.4% and pay at 6.0% on the first $7000 earned by each employee.   No state has ever missed their interest payment due on September 30th.

 


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