Missouri Unemployment Loan: It's Time to Pay the Piper

Sandy Piper, CPA

In February of 2009 Missouri began borrowing money from the federal government in order to meet its unemployment payment obligations.  As of July 23, 2012, Missouri owed a total of 568,819,264.71 to the Federal Unemployment Account, according to the U.S. Department of Labor.  For Missouri employers, who are required to repay the loan with interest, there is a two part whammy.

Part I

Interest charges on the loan, which had previously been delayed for two years by the 2009 federal economic stimulus legislation, must now be paid.  Beginning in 2011, the Missouri Division of Employment Security will notify each employer of its share of the interest payment beginning with the second quarter 2012 Contribution and Wage Reports.

The interest assessed which may not, due to federal law, come out of normal unemployment fund money, is based on the employer's taxable payroll during the previous calendar year and will be printed on line 8, Interest Assessment Due to Federal Advances.  Interest charges will continue for the foreseeable future, with interest payments being due with the 2^nd quarter MODES return.

Part II

Since Missouri is in a long term borrowing situation, federal law mandates an increase in the effective rate of federal unemployment tax (FUTA).  This is separate from the interest charges. 

Currently FUTA is 6.0% of the first $7,000 paid to each covered employee.  Since Missouri has what is termed an approved unemployment insurance law, employer's receive a credit of 5.4% which normally makes the effective federal rate 0.6%.

At the end of 2011, employers were subject to a credit reduction of 0.3% which was payable by the end of January 2012, making the 2011 FUTA rate 0.9%.  This year the credit reduction will be 0.6%, essentially doubling what employers were paying for FUTA two years ago.  The money attributable to this current 0.6% reduction will be payable in January of 2013. 

As an example, if an employer paid total FUTA in the amount of $5,000 for 2012, they will have to pay an additional $5,000 by January 2013 as part of their 2012 obligation. 

When will it end?

While the amounts yielded from these reductions are being used to pay down the loan, there have been additional borrowings and, in fact, the loan balance increased from June to July.  According to the Missouri Unemployment Office, the state does not currently have an available projection indicating when full repayment may be expected.  This is due to the continued volatility of unemployment payment requirements in the state.

At one point, says a state employee, it was thought that the loan might be repaid by 2017.  However, the state no longer believes the loan will be repaid by that time and, at present, does not have a published projection for retirement of the loan.  For the foreseeable future, paying the "piper" will be more expensive, not less, as credit reductions will increase 0.3% per year until the loan is repaid. 

For information about how this may affect your overall tax picture, consult your tax professional.  If you are in need of a tax professional, please contact us.