What is a Credit Reduction State?

Some states take loans from the Federal Unemployment Trust Fund if they lack the funds to pay unemployment insurance benefits for residents of their states. If a state has outstanding loan balances for two consecutive years, the FUTA credit rate for employers in that state will be reduced until the loan is repaid, ultimately requiring employers to pay additional unemployment tax when filing Form 940 and Schedule A for 2016, which will be due by January 31, 2017.

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