State receives federal unemployment tax waiver
FRANKFORT, Ky. (Nov. 21, 2014) — Gov. Steve Beshear today announced that Kentucky employers will save an estimated $112 million for the 2014 tax year, because the state has qualified for a waiver under the Federal Unemployment Tax Act (FUTA).
The additional tax was waived because the state has taken no actions that had a negative impact on the solvency of the Unemployment Insurance (UI) Trust Fund. As a result, the commonwealth has made significant strides in repaying a nearly $1 billion federal UI loan that began in 2009 during the national recession.
“I’m pleased Kentucky is in a position to qualify for the federal tax waiver that will bring needed relief to our employers,” Beshear said. “We have made substantial progress toward repaying the loan and ensuring the long-term stability of the UI Trust Fund, and we must stay the course until Kentucky has a healthy reserve for future downturns.”
States that continue to have an outstanding federal UI loan balance for five years trigger the additional FUTA tax increase on employers called the Benefit Cost Rate (BCR) add-on. The add-on would have been 0.9 percent of the taxable wage base and could have cost each employer another $63 per employee on top of the current 1.2 percent credit reduction employers are experiencing because Kentucky is still in borrowing status. Ten states including Kentucky qualified for the federal waiver.
As of Nov. 17, Kentucky owed $336.2 million on an initial advance of nearly $1 billion in federal UI loans. Kentucky began 2014 with an outstanding advance UI loan balance of $639.8 million.
According to the U.S. Department of Labor, the ideal level of reserve ratios in Kentucky’s UI Trust Fund would be more than $800 million. DOL estimates this figure based on an average of the Commonwealth’s benefit payments needed during past recessions.