HR 1959119th CongressIn Committee

To amend the Internal Revenue Code of 1986 to protect small businesses from unemployment insurance premium increases by reason of unrepaid State advances.

Introduced: Mar 6, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

This bill would protect small businesses from increases in unemployment insurance costs tied to unrepaid advances that some states received from the federal government during economic downturns. It does this by amending the Internal Revenue Code to ensure that the portion of the FUTA (federal unemployment tax) credit that employers can claim is not reduced for a defined group of small businesses when a state has unrepaid advances. In short, eligible small employers would receive the full credit against their FUTA tax even if their state has outstanding, unrepaid unemployment advances. The measure applies to taxable years beginning after enactment and was introduced in the House by Rep. Tenney (joined by Rep. Smucker) and referred to the Ways and Means Committee.

Key Points

1What changes: Adds a new provision to Section 3302(c) clarifying that the FUTA credit cannot be reduced for certain small businesses due to unrepaid state advances. This protects those employers from higher unemployment tax costs caused by state debt.
2Who is protected: A “specified small business” is defined as a taxpayer with fewer than 500 employees as of the close of the third quarter of the calendar year immediately preceding the second consecutive January 1 referenced in the statute.
3Effective date: The change would apply to taxable years beginning after the date of enactment.
4Mechanism: The bill preserves the small business credit against FUTA tax by excluding unrepaid state-advance reductions from applying to specified small businesses.
5Scope and limits: Applies only to small employers meeting the 500-employee threshold; does not extend to larger employers. It specifically targets the interaction between unrepaid state unemployment advances and the FUTA credit.

Impact Areas

Primary group/area affected: Small businesses (fewer than 500 employees) subject to FUTA tax. These entities would avoid potential increases in unemployment insurance costs that could result from unrepaid state advances.Secondary group/area affected: State unemployment insurance programs and the federal unemployment tax system. The policy change could reduce the extent to which unrepaid state advances affect employer credits, influencing FUTA receipts and the distribution of credits.Additional impacts:- Administrative: The IRS would implement and enforce the new paragraph, including determining which businesses qualify as “specified small businesses” under the defined test.- Economic: By shielding small firms from certain increases in unemployment costs, the bill could have modest positive effects on small-business hiring and payroll costs, particularly in states with outstanding advances.- Fiscal: The bill could increase federal outlays by preserving larger FUTA credits for eligible small businesses, potentially reducing federal revenue in this area unless offset elsewhere.The bill status is introduced in the 119th Congress and has not become law. It specifies sponsor names (Rep. Tenney and Rep. Smucker) and a reference to the Ways and Means Committee.The policy focuses narrowly on the interaction between unrepaid state unemployment advances and the FUTA credit, with no broader changes to unemployment insurance benefits or state financing structures beyond this credit protection.

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