As part of his deficit reduction plan, President Barack Obama recently released his budget for fiscal year 2014. One of the most important elements for employers to take note of are raises on federal unemployment tax (FUTA) rates. The president’s near- and long-term fiscal vision is increasingly focused on reducing state debt to the federal government, and employers may need to chip in more to settle accounts resulting from loans made to states to pay jobless benefits.
Eventual goal is to lessen FUTA tax rate over time
Under the measures of the president’s budget plan, a solvency proposal would bring the net FUTA tax rate back to 0.8 percent by 2014, and then further reduce the rate to 0.37 percent by 2016.
However, employers in all 50 states would see immediate the effects of an increase to the FUTA rate of 25 percent if the budget proposal is approved. Already, employers in a number of states saw their rates increase this year; firms in 19 states and the Virgin Islands were subject to steeper FUTA tax rates when filing this year.
The stipulations of this recent budget would have a similar large-scale impact on unemployment insurance compliance.
The proposal would raise the FUTA wage base to $15,000 in 2016, meaning states with taxable employee wage bases beneath that number will have to bring their thresholds up. States affected by that requirement would include: Alabama, Arkansas, Colorado, Delaware, Washington, D.C., Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New York, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, West Virginia and Wisconsin.
The wage base would then be indexed at $15,000, which would allow for threshold fluctuation in anticipation of wage growth, which would elevate the base pay structure again.
As a result, the budget expects to generate some $65 billion in revenue: $50 billion would be derived from the tax base increase and the FUTA rate hike would account for $15 billion.
Employers fretting over the change should note the chances of the president’s budget proposal passing are uncertain, given the political gridlock gripping the Capitol and competing proposals from Congress.
Whether or not the budget gets passed, it’s essential that businesses are sufficiently prepared to comply with changes in unemployment insurance, which can be achieved by working with an HR service provider.