Ohio and Kentucky employers should be aware that their federal unemployment taxes (FUTA) will increase for 2011 – effective retroactive to January 1, 2011, and due by January 31, 2012.
Because Ohio and Kentucky did not repay loans from the federal unemployment fund in time, their state FUTA credit will be reduced from 5.4% to 5.1%, which means employers within each state are now responsible for an additional 0.3% in federal taxes. This change is especially significant for business with a large number of employees.
Kentucky businesses also face increased tax liabilities due to the increase in wage base from $8,000 to $9,000 in 2012, meaning they must pay state unemployment tax (SUTA) on the first $9,000 of each employee’s wages. The Ohio wage base will remain unchanged at $9,000, and the federal base remains unchanged at $7,000.
The reduction in FUTA credit essentially negates a previous reduction in the tax. A longtime FUTA surtax expired June 30 and has not been reapplied, so the federal unemployment tax rate dropped from 6.2% in the first half of the year to 6% in the second half of the year. After applying the 5.1% state credit, employers in Ohio and Kentucky will owe 1.1% in federal unemployment taxes from January 1 through June 30 and 0.9% from July 1 through the end of the year.
The credit will shrink further in future years for any state that still has unpaid federal loans. As of November 2, Ohio owed more than $2.3 billion in unpaid federal loans and Kentucky owed $948 million.
In all, employers in 20 states will see their 2011 FUTA tax increase because their state has unpaid federal loans.
For more information on how the change in FUTA will impact your business, contact your Barnes Dennig representative at (513) 241-8313.