Employers generally pay federal unemployment tax (FUTA) of 6% on the first $7,000 of covered wages of each employee each year. That’s offset by the state unemployment insurance (UI) tax paid. States that can’t meet their obligations to pay UI benefits may borrow funds from the federal government. If the loans aren’t repaid, employers in the state may be subject to “credit reductions,” resulting in higher FUTA until loans are paid off. According to the U.S. Labor Dept., only the Virgin Islands is currently subject to a credit reduction, with FUTA increased by 2.4%.
