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NYS in Default on Federal Loan

SOURCE: Bureau of National Affairs Inc., November 3, 2004

New York State borrowed $400 million from the federal government in 2003 to keep the NY state unemployment insurance fund solvent in the wake of a surge of layoffs post-9/11. Federal law provides the borrower two years to repay the debt before a mandatory federal FUTA tax assessment is levied to make up the debt.

As of November 2004, the state defaulted on the federal loan. As a consequence, NYS employers will be required to pay additional Federal Unemployment Tax Act (FUTA) contributions in 2004, and likely in 2005. The extra surcharge - or credit reduction- in FUTA contributions is 0.3% of wages subject to NYS Unemployment. This additional assessment amounts to a maximum of $25.50 per employee for the year. The increase amounts to a 46% increase in an employer's FUTA expense, or generally a $26 per employee increase.

This marks the first time since 1992 that a state has defaulted on a FUTA loan, triggering federal action to recoup the loan amount. All New York State employers are required to contribute to repay the loan. HomeWork Solutions' New York domiciled clients will note that this additional assessment has been calculated on the Form 1040 Schedule H that will be prepared for 2004.

State unemployment tax rates have increased an average of 50% in the period 2002 - 2004 as a result of increased claims, according to data compiled by UWC-Strategic Services on Unemployment and Workers' Compensation.

 MORE INFORMATION
 NYS Notice to Employers

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