The State of California recently retired their Title XII loan, which at one point exceeded $8 billion. Title XII loans were made available to States following the Great Recession, which began in 2007. The Title XII loans allowed States to continue paying Unemployment Insurance claims during the recession. In exchange for receiving these loans, States were subject to a reduction in their Federal Unemployment Tax Act (FUTA) credits, thus increasing their FUTA tax rates.
By paying off this loan, California employers may enjoy a reduction in their FUTA tax rates to .6% or $42 per employee. This is the same rate as all the other States, with the exception of the Virgin Islands. While California’s loan balance currently stands at zero, it is possible that they may borrow again and have an outstanding balance when FUTA credits are issued in November.
The tax professionals at Employers Edge will be monitoring this development and will report later this year if California’s loan balance remains at zero and if employers are indeed again subject to a FUTA rate of .6% after eliminating their Title XII loan.