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Communication
Relating to FUTA Credit Reductions/Interest Payments (September
2022)
The Connecticut Unemployment Insurance (UI) Trust Fund (Fund)
had a balance of approximately $700 million prior to the
COVID-19 pandemic. According to the formula outlined within the
Connecticut General Statutes, the Fund needed $1.4 billion to be
considered solvent. Due to the impact of the COVID-19 pandemic
and the depth of the economic recession, the Fund was depleted
in August 2020. As a result, the Connecticut Department of Labor
(CTDOL) began borrowing funds from the United States Department
of Labor (USDOL) to continue paying state UI benefits. As of
September 19, 2022, CTDOL has borrowed approximately $1 billion
and has a loan balance (amount due to USDOL) of $92 million.
Currently, Connecticut is one of six states with outstanding
federal loans.
Generally, federal loans carry interest that is paid to USDOL on
September 30 of each year in which a loan is outstanding. In
response to the global pandemic, United States Congress passed
legislation that waived the interest on UI trust fund loans
through September 6, 2021. For Connecticut, interest of
approximately $1 million from September 7, 2021 through
September 30, 2021 was due September 30, 2021.
In Connecticut, the statutory mechanism to collect interest is
through an annual Special Assessment that is levied on active
Connecticut contributory employers in August. This is a
supplemental bill that covers the interest accrued on an
outstanding loan balance. However, recognizing the financial
burden foisted upon businesses by the pandemic, Governor Lamont
authorized the state to pay the interest due on September 30,
2021, thereby eliminating the need for Connecticut employers to
pay the Special Assessment last year. CTDOL projects that
Connecticut will continue to have an outstanding loan balance
through 2025, therefore, interest will continue to accrue
through September 2026. Governor Lamont has obligated $30M in
federal ARPA funds to pay the interest due from September 2022
through September 2026. This action and commitment will relieve
employers of paying interest costs of up to $30M in those years
as well. Therefore, CT employers will not be burdened by any
special assessments for UI pandemic-related loan interest
payments.
One of the federal statutory mechanisms for repaying outstanding
federal loans is through increased Federal Unemployment Tax Act
(FUTA) taxes. Each state that has federal loans outstanding for
at least two consecutive years subjects their employers to
increased FUTA taxes each year until all loans are paid in full.
The payments from FUTA tax increases are applied directly to
that state’s outstanding federal loan balance. As the state has
an outstanding loan balance, Connecticut employers will have a
FUTA tax increase of 0.3%, applied to payroll paid from January
1, 2022, through December 31, 2022— up to $21 per full-time
employee. The calendar year 2022 FUTA tax return payments will
be due and payable in January 2023.
To mitigate the impact of the FUTA tax increase, the Connecticut
Legislature passed Public Act 22-118, which contains a provision
reducing the state unemployment tax rates by 0.2% for calendar
year 2023. This state unemployment tax rate reduction more than
offsets the FUTA tax increase described above.
Please note that while the IRS will publish a list of FUTA
credit reduction states in November 2022, CTDOL is providing
employers and their payroll agents this information in advance
of the IRS notice to allow employers to budget for the federal
tax increases and minimize retroactive adjustments.
Unemployment Insurance Tax
Information Homepage
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