PART 606—TAX CREDITS UNDER THE FEDERAL UNEMPLOYMENT TAX ACT; ADVANCES UNDER TITLE XII OF THE SOCIAL SECURITY ACT Authority: 42 U.S.C. 1102; 42 U.S.C. 1322(b)(2)(C); 26 U.S.C. 7805(a); Secretary's Order No. 3-2007, April 3, 2007 (72 FR 15907). Source: 53 FR 37429, Sept. 26, 1988, unless otherwise noted. Editorial Note: Nomenclature changes to part 606 appear at 71 FR 35513, June 21, 2006. Subpart A—General § 606.1 Purpose and scope. (a) In general. (b) Scope. (1) Subpart B describes the tax credit reductions under the Federal Unemployment Tax Act, which relate to outstanding balances of advances made under title XII of the Social Security Act. (2) Subpart C describes the various forms of relief from tax credit reductions, and the criteria and standards for grant of such relief in the form of— (i) A cap on tax credit reduction, (ii) Avoidance of tax credit reduction, and (iii) Waiver of and substitution for additional tax credit reduction. (3) Subpart D describes the interest rates on advances made under title XII of the Social Security Act, dues dates for payment of interest, and other related matters. (4) Subpart E describes the various forms of relief from payment of interest, and the criteria and standards for grant of such relief in the form of— (i) May/September delay of interest payments, (ii) High unemployment deferral of interest payments, (iii) High unemployment delay of interest payments, and (iv) Maintenance of solvency effort required to retain a deferral previously granted. § 606.2 Total credits allowable. The total credits allowed to an employer subject to the tax imposed by section 3301 of the Federal Unemployment Tax Act shall not exceed 5.4 percent with respect to taxable years beginning after December 31, 1984. § 606.3 Definitions. For the purposes of the Acts cited and this part— Act Advance Average High Cost Multiple (AHCM) Average High Cost Rate (AHCR) (1) Determine the time period over which calculations are to be made by selecting the longer of: (i) The 20-calendar year period that ends with the year for which the AHCR calculation is made; or (ii) The number of years beginning with the calendar year in which the first of the last three completed national recessions began, as determined by the National Bureau of Economic Research, and ending with the calendar year for which the AHCR is being calculated. (2) For each calendar year during the selected time period, calculate the benefit-cost ratio, as defined in § 606.3; and (3) Average the three highest calendar year benefit cost ratios for the selected time period from paragraph (2) of this definition. Final calculations are rounded to the nearest multiple of 0.01 percent. Benefit-cost ratio (1) The total dollar sum of— (i) All compensation actually paid under the State law during such calendar year, including in such total sum all regular, additional, and extended compensation, as defined in section 205 of the Federal-State Extended Unemployment Compensation Act of 1970, and excluding from such total sum— (A) Any such compensation paid for which the State is entitled to reimbursement or was reimbursed under the provisions of any Federal Law, and (B) Any such compensation paid which is attributable to services performed for a reimbursing employer, and which is not included in the total dollar amount reported under paragraph (c)(1)(i)(A) of this section, and (ii) Any interest paid during such calendar year on any advance, by (2) The total wages (as defined in § 606.3) with respect to such calendar year. (3) For cap purposes, if any percentage determined by this computation for a calendar year is not a multiple of 0.1 percent, such percentage shall be reduced to the nearest multiple of 0.1 percent. For funding goal purposes, if any percentage determined by this computation for a calendar year is not a multiple of 0.01 percent, such percentage is rounded to the nearest multiple of 0.01 percent. Contributions Federal unemployment tax Fiscal year FUTA Reserve ratio State unemployment fund unemployment fund Taxable year Unemployment tax rate Wages, taxable Wages, total [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35513, June 21, 2006; 75 FR 57156, Sept. 17, 2010] § 606.4 Redelegation of authority. (a) Redelegation to OWS Administrator. Federal Register (b) Delegation by Governor. [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35514, June 21, 2006] § 606.5 Verification of estimates and review of determinations. The Department of Labor (hereinafter “Department”) shall verify all information and data provided by a State under this part, and the State shall comply with such provisions as the Department considers necessary to assure the correctness and verification of such information and data. The State agency of a State affected by a determination made by the OWS Administrator under this part may seek review of such determination by a higher level official of the Employment and Training Administration. § 606.6 Information, reports, and studies. A State shall furnish to the Secretary of Labor such information and reports and conduct such studies as the Secretary determines are necessary or appropriate for carrying out the purposes of this part, including any additional information or data the OWS Administrator may require for the purposes of making determinations under subparts C and E of this part. [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35514, June 21, 2006] Subpart B—Tax Credit Reduction [Reserved] Subpart C—Relief From Tax Credit Reduction § 606.20 Cap on tax credit reduction. (a) Applicability. (1) No action was taken by the State during the 12-month period ending on September 30 of such taxable year which has resulted, or will result, in a reduction in the State's unemployment tax effort, as defined in § 606.21(a); (2) No action was taken by the State during the 12-month period ending on September 30 of such taxable year which has resulted, or will result, in a net decrease in the solvency of the State unemployment compensation system, as defined in § 606.21(b); (3) The State unemployment tax rate (as defined in § 606.3) for the taxable year equals or exceeds the average benefit-cost ratio (as defined in § 606.3) for the calendar years in the five-calendar year period ending with the calendar year immediately preceding the taxable year for which the cap is requested, under the rules specified in § 606.21 (c) and (d); and (4) The outstanding balance of advances to the State on September 30 of the taxable year was not greater than the outstanding balance of advances to the State on September 30 of the third preceding taxable year. (b) Maximum tax credit reduction. (c) Year not taken into account. (d) Partial caps. [53 FR 37429, Sept. 26, 1988, as amended at 75 FR 57156, Sept. 17, 2010] § 606.21 Criteria for cap. (a) Reduction in unemployment tax effort. (2) Actions that will result in a reduction in tax effort include, but are not limited to, a reduction in the taxable wage base, the tax rate schedule, tax rates, or taxes payable (including surtaxes) that would not have gone into effect but for the legislative, judicial, or administrative action taken. Notwithstanding the foregoing criterion, a reduction in unemployment tax effort resulting from any provision of the State law enacted prior to August 13, 1981, will not be taken into account as a reduction in the State's unemployment tax effort for the purposes of this section. (b) Net decrease in solvency. (c) State unemployment tax rate. (d) State five-year average benefit cost ratio. [53 FR 37429, Sept. 26, 1988, as amended at 75 FR 57156, Sept. 17, 2010] § 606.22 Application for cap. (a) Application. (2) The OWS Administrator will make a determination on the application on or before November 10 of such taxable year, will notify the applicant and the Secretary of the Treasury of such determination, and will cause notice of such determination to be published in the Federal Register. (b) Anticipated impact statement. (1) The estimated dollar effect on each program action upon expenditures for compensation from the State unemployment fund and for the amounts of contributions paid or payable in such 12-month period, including the effect of interaction among program actions, and with respect to program actions for which dollar impact cannot be estimated or is minor or negligible, indicate whether the impact is positive or negative; (2) If a program action has no such dollar effect, an explanation of why there is or will be no such effect; (3) A description of assumptions and methodology used and the basis for the financial estimate of the impact of each program action described in paragraphs (b)(1) and (b)(2) of this section; and (4) A comparision of the program actions described in paragraphs (b)(1) and (b)(2) of this section with the program actions prior to the Federal fiscal year (as defined in § 606.3) which ends on such September 30. (c) Unemployment tax rate. (1) The amount of taxable wages as defined in § 606.3; (2) The amount of total wages as defined in § 606.3; and (3) The estimated distribution of taxable wages, as defined in § 606.3, by tax rate under the State law. (d) Benefit cost ratio. (1) The total dollar sum of compensation actually paid under the State law during the calendar year, including in such total sum all regular, additional, and extended compensation as defined in section 205 of the Federal-State Extended Unemployment Compensation Act of 1970, but excluding from such total sum— (i) The total dollar amount of such compensation paid for which the State is entitled to reimbursement or was reimbursed under the provisions of any Federal law; (ii) The total dollar amount of such compensation paid which is attributable to services performed for a reimbursing employer, and which is not included in the total amount reported under paragraph (d)(1)(i) of this section; (2) The total dollar amount of interest paid during the calendar year on any advance; and (3) The total dollar amount of wages (as defined in § 606.3) with respect to such calendar year. (e) Documentation required. (f) State contact person. [53 FR 37429, Sept. 26, 1988, as amended at 75 FR 57156, Sept. 17, 2010] § 606.23 Avoidance of tax credit reduction. (a) Applicability. (1) Advances were repaid by the State during the one-year period ending on November 9 of the taxable year in an amount not less than the sum of— (i) The potential additional taxes (as estimated by the OWS Administrator) that would be payable by the State's employers if paragraph (2) of section 3302(c) of FUTA were applied for such taxable year (as estimated with regard to the cap on tax credit reduction for which the State qualifies under §§ 606.20 to 606.22 with respect to such taxable year), and (ii) Any advances made to such State during such one-year period under title XII of the Social Security Act; (2) There will be adequate funds in the State unemployment fund (as estimated by the OWS Administrator) sufficient to pay all benefits when due and payable under the State law during the three-month period beginning on November 1 of such taxable year without receiving any advance under title XII of the Social Security Act; and (3) There is a net increase (as estimated by the OWS Administrator) in the solvency of the State unemployment compensation system for the taxable year and such net increase equals or exceeds the potential additional taxes for such taxable year as estimated under paragraph (a)(1)(i) of this section. (b) Net increase in solvency. (i) September 3, 1982, or (ii) The date on which the first advance is taken into account in determining the amount of the potential additional taxes. (2) The OWS Administrator shall determine the net increase in solvency by first estimating the difference between revenue receipts and benefit outlays under the law in effect for the year for which avoidance is requested, as if the relevant changes in State law referred to in paragraph (b)(1) of this section were not in effect for such year. The OWS Administrator shall then estimate the difference between revenue receipts and benefit outlays under the law in effect for the year for which the avoidance is requested, taking into account the relevant changes in State law referred to in paragraph (b)(1) of this section. The amount (if any) by which the second estimated difference exceeds the first estimated difference shall constitute the net increase in solvency for the purposes of this section. (c) Year taken into account. § 606.24 Application for avoidance. (a) Application. (2) The OWS Administrator will make a determination on the application as of November 10 of such taxable year, will notify the applicant and the Secretary of the Treasury of such determination, and will cause notice of such determination to be published in the Federal Register. (b) Information. (2) The application also shall include estimates of revenue receipts, benefit outlays, and end-of-month fund balance for each month in the period beginning with September of the taxable year for which avoidance is requested through the subsequent January. Actual data for the comparable period of the preceding year also shall be included in the application in order to determine the reasonableness of such estimates. (3) The application also shall include a description of State law changes, effective for the taxable year for which the avoidance is requested, which resulted in a net increase in the solvency of the State unemployment compensation system, and documentation which supports the State's estimate of the net increase in solvency for such taxable year. § 606.25 Waiver of and substitution for additional tax credit reduction. A provision of subsection (c)(2) of section 3302 of FUTA provides that, for a State that qualifies, the additional tax credit reduction applicable under subparagraph (C), beginning in the fifth consecutive year of a balance of outstanding advances, shall be waived and the additional tax credit reduction applicable under subparagraph (B) shall be substituted. The waiver and substitution are granted if the OWS Administrator determines that the State has taken no action, effective during the 12-month period ending on September 30 of the year for which the waiver and substitution are requested, which has resulted or will result in a net decrease in the solvency of the State unemployment compensation system as determined for the purposes of §§ 606.20(a)(2) and 606.21(b). § 606.26 Application for waiver and substitution. (a) Application. (b) Notification of determination. Federal Register. Subpart D—Interest on Advances § 606.30 Interest rates on advances. Advances made to States pursuant to title XII of the Social Security Act shall be subject to interest payable on the due dates specified in § 606.31. 1 1 Editorial note: [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35514, June 21, 2006] § 606.31 Due dates for payment of interest. [Reserved] § 606.32 Types of advances subject to interest. (a) Payment of interest. (b) Cash flow loans Availability of interest-free advances. (i) The advances are repaid in full prior to October 1 of the calendar year in which the advances are made; (ii) The State does not receive an additional advance after September 30 of the same calendar year in which the advance is made. If the State receives an additional advance after September 30 of the same calendar year in which earlier advances were made, interest on the fully repaid earlier advance(s) is due and payable not later than the day following the date of the first such additional advance. The administrator of the State agency must notify the Secretary of Labor no later than September 10 of the same calendar year of those loans deemed to be cash flow loans and not subject to interest. This notification must include the date and amount of each loan made beginning January 01 through September 30 of the same calendar year, and a copy of documentation sent to the Secretary of the Treasury requesting loan repayment transfer(s) from the State's account in the UTF to the Federal unemployment account in the UTF; and (iii) The State has met the funding goals described in paragraph (b)(2) or (b)(3) of this section. (2) Funding goals. (i) The State, as of December 31 of any of the 5 consecutive calendar years preceding the calendar year in which such advances are made, had an AHCM of at least 1.00, as determined under § 606.3; and (ii) The State maintained tax effort as determined under paragraph (b)(4) of this section. (3) Phasing in funding goals. (i) A State has met the solvency criterion if: (A) For calendar year 2014, as of December 31 of any of the 5 consecutively preceding calendar years, the State had an AHCM of at least 0.50, as determined under § 606.3; (B) For calendar year 2015, as of December 31 of any of the 5 consecutively preceding calendar years, the State had an AHCM of at least 0.60, as determined under § 606.3; (C) For calendar year 2016, as of December 31 of any of the 5 consecutively preceding calendar years, the State had an AHCM of at least 0.70, as determined under § 606.3; (D) For calendar year 2017, as of December 31 of any of the 5 consecutively preceding calendar years, the State had an AHCM of at least 0.80, as determined under § 606.3; (E) For calendar year 2018, as of December 31 of any of the 5 consecutively preceding calendar years, the State had an AHCM of at least 0.90, as determined under § 606.3; (ii) A State has met the maintenance of tax effort criteria if it maintained tax effort as determined under paragraph (b)(4) of this section. (4) Maintenance of tax effort criteria. (i) 80 percent of the prior year's unemployment tax rate; and (ii) 75 percent of the State 5-year average benefit-cost ratio, as determined under § 606.21(d). [53 FR 37429, Sept. 26, 1988, as amended at 75 FR 57156, Sept. 17, 2010] § 606.33 No payment of interest from unemployment fund. [Reserved] § 606.34 Reports of interest payable. [Reserved] § 606.35 Order of application for repayments. [Reserved] Subpart E—Relief from Interest Payment § 606.40 May/September delay. Subsection (b)(3)(B) of section 1202 of the Social Security Act permits a State to delay payment of interest accrued on advances made during the last five months of the Federal fiscal year (May, June, July, August, and September) to no later than December 31 of the next succeeding calendar year. If the payment is delayed, interest on the delayed payment will accrue from the normal due date ( i.e. § 606.41 High unemployment deferral. (a) Applicability. (b) High unemployment defined. (c) Schedule of deferred payments. (d) Related criteria. (e) Application for deferral and determination. (2) The OWS Administrator will determine whether deferral is or is not granted on the basis of the Department's records of reports of the rates of insured unemployment and information obtained from the Department of the Treasury as to the timely and full payment of one-fourth of the interest due. § 606.42 High unemployment delay. (a) Applicability. (b) Delayed due date. (c) Application for delay in payment and determination. (2) The OWS Administrator will determine whether delay is or is not granted on the basis of seasonally unadjusted civilian total unemployment rate data published by the Department's Bureau of Labor Statistics. § 606.44 Notification of determinations. The OWS Administrator will make determinations under §§ 606.41, 606.42, and 606.43 on or before September 10 of the taxable year, will promptly notify the applicants and the Secretary of the Treasury of such determinations, and will cause notice of such determinations to be published in the Federal Register. Federal Register