Indianapolis – Governor Mike Pence today announced that the state of Indiana will advance funds to the Department of Workforce Development (DWD) to eliminate the outstanding federal unemployment loan and avoid the Federal Unemployment Tax Act (FUTA) penalty facing employers in January. If the loan balance is paid off by November 10, 2015, businesses will avoid $327 million in taxes, equating to $126 per employee in the state.
“I’m proud today to announce that because of our prudent fiscal management and financial planning, Indiana will eliminate the tax on hiring for Hoosier employers,” said Governor Pence. “By advancing funds to the Department of Workforce Development to pay off the outstanding loan to our unemployment trust fund, Indiana is demonstrating the importance of growing and maintaining economic achievement in our state. Removing this tax penalty for employers frees up resources that can be invested in hiring new employees, growing existing companies, raising wages, and more, and I’m confident that by removing this financial impediment to hiring, Hoosiers will continue to see economic opportunity all across our state.”
The state of Indiana first began borrowing from the federal government to pay unemployment benefits in 2008. If a state borrows for two consecutive years, Federal Unemployment Tax Act (FUTA) tax credits are decreased by the federal government, resulting in a tax increase to employers. This tax continues to increase for each successive year the loan is outstanding.
Today, Indiana employers face the highest FUTA penalty in the country at 1.8 percent.
Employers pay both federal and state unemployment taxes to fund the unemployment insurance system, and this advance of funds will significantly decrease the penalties for federal taxes. The advance will be repaid to the State from the collections of existing state unemployment taxes. It is expected that the advance will be repaid by the end of fiscal year 2016. Once repaid, the funds used to eliminate the outstanding FUTA penalty will be available to be used for other priorities.
