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Federal unemployment taxes will rise for employers in 20 states and the Virgin Islands. Those employers are losing part of a credit on federal unemployment taxes in 2011 because their state governments have unpaid balances for two or more years on federal funds borrowed to pay state unemployment claims.
The federal unemployment tax is calculated as 6.2 percent of the first $7,000 of an employee’s wage for wages paid in the first half of 2011 and 6.0 percent in the second half. Employers who pay state unemployment taxes on time normally receive an offset credit of 5.4 percent on their federal unemployment tax. The credit lowers the federal unemployment tax to 0.8 percent in the first half of the year and 0.6 percent in the second.
Because of unpaid balances, the offset credit is being reduced to 5.1 percent in 2011 from 5.4 percent the previous year in the following areas:
- North Carolina
- New Jersey
- New York
- Rhode Island
- Virgin Islands
Employers in two other states will see bigger reductions in the credit because of outstanding balances more than two years old. In Indiana, the credit will fall to 4.8 percent. In the other state, Michigan, the credit will fall to 4.5 percent.
The final determination of the credit reductions was made on Nov. 10 and announced by the U.S. Department of Labor.
In 2010, only three states received reduction in their credits: Michigan, Indiana and South Carolina. The UWC — Strategic Services on Unemployment & Workers’ Compensation, a Washington-based group, reported that South Carolina qualified to avoid a reduction in its credit this year.
On Nov. 15, the UWC reported it sent a letter to Congress asking it to waive penalties on employers in states with borrowing. The increased taxes will add to employers’ burden amid state unemployment taxes that are also increasing, according to the organization, which estimates state unemployment taxes will rise by $11 billion in 2011 and $5 billion in 2012.