Repayment

Employers began to feel the effects of The Great Recession of 2008 with the issuance of the 2010 unemployment tax rate notices.    Many states became insolvent and needed to borrow money from the federal government in order to pay claimants under the Title XII loan provision.   Each state who borrowed was required to repay the loan within two years in order to retain the credit reduction of 5.4% (6.0%-5.4%= 0.6%).

The loss of the credit reduction began with Michigan in 2009 which forced Michigan employers to pay at a 0.9% on the first $7000 for each employee.   In 2010, Michigan still owed monies under the Title XII loan provision.   Another 0.3% was added to the final FUTA tax rate increasing it to 1.2%.  Indiana and South Carolina lost their first 0.3% in 2010.  The year 2012 was the peak of the increased FUTA tax rates across the nation.   The employers in almost half the states were paying increased FUTA taxes.   On top of the increased FUTA taxes, employers were  also assessed an amount to repay the interest on the Title XII loan.

By 2013, the list of states that were losing a portion of their FUTA credit reduction had begun to fall.    There were many variations in how the Title XII loans were repaid.  Some states sold bonds to repay the debt.  Other states increased their tax rates and added surcharges.  Some states reduced the number of weeks a claimant could collect while other states borrowed money from other funds within their state.

For 2017, California and Virgin Island are the only two states that have outstanding Title XII loans.    The employers of California and Virgin Island will pay at a rate of 2.7% unless the outstanding loans are repaid by November 10, 2017.   If California or Virgin Island repays their loans by the November deadline, employers in those states would pay at a rate of 0.6%.   The additional FUTA taxes paid above the 0.6% FUTA tax rate will go towards the repayment of the outstanding loans.

Perhaps in 2018, all FUTA loans will be repaid.  The ten year payment for the surge of increased claimant activity from October of 2008 through the end of 2010 may finally end for most states by 2018.   For the states who sold bonds or chose another method for the repayment of the Title XII loan, the repayment of the Great Recession could extend into the year  2020.


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