For budgeting purposes, you should assume a 0.6% FUTA rate on the first $7,000 in wages for all states unless you will be working in the U.S. Virgin Islands (USVI), in which case, you should assume a 3.3% rate.
Why? The IRS dictates that an employer will pay federal unemployment taxes at the rate of 6% less a FUTA credit to cover their FUTA liability. In 2018, the U.S. Virgin Islands (USVI) was the only jurisdiction still behind in its federal loan and was thus subject to a 2.4% credit reduction. California was able to pay off its loan balance, so its long-standing credit reduction was eliminated.
Because the USVI is still behind in its balances, an additional assessment of 0.3% is anticipated in 2019. Therefore the 2019 FUTA credit reduction (FCR) for the USVI is expected to rise to an anticipated 2.7%, for an effective federal unemployment tax rate of 3.3% [calculated as 6% (the actual FUTA rate) less 5.4% (the standard FUTA credit allotted to each state or territory) - 2.7% (FCR)].
If a state or territory falls seriously behind, i.e. has five or more consecutive January 1’s with an outstanding federal advance (which gets paid off via FUTA remittances), the federal government can also assess a Benefit Cost Ratio (BCR) add-on to accelerate the reduction of the loan balance. In 2018, the Virgin Islands applied for and was granted a waiver and was not subject to a BCR add-on. If needed, an additional waiver for 2019 would be applied for by July 1st, so a future assessment is currently unknown.
The wage ceiling for FUTA is $7,000. Once an employee’s year-to-date (YTD) wages exceed $7,000, the employer stops paying FUTA for that employee. So for 2019, USVI employers can expect to pay up to $231 in federal unemployment tax costs for each employee ($7,000 x 3.3%).
Learn more about FUTA credit reductions.
This information is distributed with the understanding that the publisher is not rendering legal, accounting, tax or other professional services. If legal advice or other assistance is required, an attorney, CPA or tax advisor should be consulted.
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