The Federal Unemployment Tax Act (FUTA) imposes a tax on employers which provides funds to states to operate public employment offices and pay unemployment insurance benefits to qualified claimants. The FUTA tax rate was 6.20% until June 30, 2011. As of July 1, 2011, the rate decreased to 6.0 %. Employers who file and pay their state unemployment tax timely receive up to a 5.4% credit against their federal tax.

Kentucky’s Unemployment Insurance Trust Fund became insolvent in 2009, and the Commonwealth has had to use federal loans to pay benefits. Since we continued to have outstanding loans for two consecutive years, employers will incur a .3% reduction in the amount of credit they can take against their Annual Federal Unemployment Tax (credit will decrease from 5.4% to 5.1%). This credit reduction will increase by .30% each year the balance remains unpaid. Please refer to the chart for your credit reduction amount each year until the loan balance has been paid in full.