According to the U.S. Department of Labor, the U.S. Virgin Islands could not pay its federal loans by the November 10, 2020, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2020. It will have a credit reduction of 3.0% for 2020 [DOL, Final 2020 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-12-20]. The territory was also subject to a credit reduction in 2019.
The additional FUTA tax must be deposited by the due date of the 2020 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due February 1, 2021 (because January 31, 2021, is a Sunday). The 2020 Schedule A (Form 940) will contain the official list of credit reduction states/territories, and the credit reduction total from Schedule A is reported on Form 940. Both forms will be available from the IRS when they are finalized.
Future Years
Only the U.S. Virgin Islands faces a credit reduction for 2020. But this may change for future years. As of November 16, 2020, 20 states have outstanding Federal Unemployment Account (FUA) loans. If these loans are not paid off, these states could face potential FUTA credit reductions in future years. It is also possible that federal relief could impact future credit reductions.
Interested in more state and local payroll coverage? APA’s PayState Update eNewsletter is perfect for you.
Lia Coniglio, Esq., is Managing Editor of PayState Update and Manager of State Payroll Information Resources for the APA
