South Carolina’s Default on Federal Loans Cost its Taxpayers FUTA Tax

Most of us don’t realize the the Federal Unemployment Tax (FUTA) that we pay is tied to how each state pays its unemployment tax.  Well, some state’s taxpayers are going to learn the hard way. Currently the states of Indiana, Michigan and South Carolina are in default on their Federal loans.  Therefore, the FUTA credit for these states is reduced by .3%.  This means that taxpayers from theses states will pay around $21 extra per year per employee. This increase is retroactive to January 1, 2010 for these states. 

The credit reduction will increase by .3% annually until the Federal loans are repaid.  States have until November of the current year to repay the loan to avoid the increase in the FUTA rate.  For example, if South Carolina fails to repay the loan by November 2011, its January 1 to December 31, 2011 FUTA percentage will be .014 or an extra $42 per employee.

The Federal Government predicts 22 additional states will become delinquent in their loan for 2011.

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