Benefit Cost Rate (BCR) Tax Implemented for New York and California Effective: January 1, 2025

An additional Federal Unemployment Insurance (FUI) tax – called the Benefit Cost Rate (BCR) – will apply for employees in New York and California in 2025. EP will charge the BCR to all client production companies for CA and NY unemployment insurance payroll tax billings, retroactive to January 1, 2025.

The increased FUI payroll tax charge will be included on applicable client invoices for existing and new projects starting on March 1, 2025, and will apply to wages up to the $7,000 limit for each employee per project. We will also issue a single retro invoice reflecting the additional FUI charge for each affected project for the period of January 1 through February 28, 2025, and will apply the charge against wages up to the tax ceiling for each employee per project.

As background, EP has charged clients a payroll tax called FUI2 in CA and NY since 2022 due to outstanding Federal Unemployment Insurance tax loan balances. These balances originated from advances these states received from the US Department of Labor (USDOL) during the pandemic in 2020. As a result, the law requires a reduction in the normal FUI tax credit of 5.4% by 0.3% per year for employers in both NY and CA (aka FUI2) because the federal loan has not been repaid.

Because 2025 marks the fourth year of FUI2 charges for CA and NY unemployment payroll taxes, the 2025 FUI2 reduced credit rate charge in CA and NY is now 1.2% as shown in our current rate sheets. Accordingly, EP has been charging clients for CA and NY unemployment payroll taxes a net FUI tax rate of 1.8% (0.6% + 1.2% reduced credit rate) in 2025 up to the $7,000 FUI tax ceiling (or max $126 per employee per project).

In addition to the reduced credit rate, the additional FUI credit reduction - known as BCR - will be applied by law for 2025. The BCR serves as a FUI-imposed penalty to discourage states from carrying a UI loan balance over several years. It is assessed when a state has had five or more consecutive January firsts with an outstanding FUI loan balance. Because both CA and NY have maintained outstanding balances since 2020 and are now in their fifth year of carrying FUI loan balances, the BCR applies for all CA and NY unemployment tax billings for 2025 unless the states secure waivers from the USDOL later this year (see below).

The USDOL has computed the 2025 BCR as follows (published on USDOL website on January 17, 2025):

• California: An additional FUI tax charge of 3.7% for clients with CA unemployment payroll tax billings, on top of the existing 1.8% FUI tax charges (additional $259 per employee up to the $7,000 FUI tax ceiling, or a max $385 per employee per project)
• New York: An additional FUI tax charge of 1.1% for clients with NY unemployment payroll tax billings on top of the existing 1.8% FUI tax charges (additional $77 per employee up to the $7,000 FUI tax ceiling, or a max of $203 per employee per project)

The BCR charge will be included in the FUI2 line item for your earnings reports and invoices.

As noted above, the BCR may be waived by the USDOL if CA and NY submit an application to the agency for a waiver by July 1, 2025, and if the states take no legislative, judicial or administrative action that would worsen their UI trust fund solvency for the 12-months ending on September 30, 2025 (or if CA and NY pay off their UI loan balances, which is highly unlikely). The USDOL is required to grant the waiver by September 30, 2025, if the waiver application is complete and all conditions have been met.

Although the BCR was potentially applicable in CA during the period of 2014 through 2017 and in NY in 2014, the states obtained waivers each year from the USDOL. However, it is uncertain if the states will obtain waivers this year due to the unpredictable political environment between the federal agencies and many states including CA and NY. Because EP as the statutory employer would be liable for a substantial increase in its 2025 FUI payments due in January 2026 without the granting of the waivers, as a matter of prudent fiscal planning, we are charging the BCR as a precautionary measure on all 2025 payroll activity with CA and NY payroll tax charges. If either state obtains a waiver from the USDOL, we will refund each client’s BCR charges within 90 days after confirmation that a waiver has been granted. An updated rate sheet reflecting the additional BCR will be provided.

To protect our clients’ interests and ensure that CA and NY are prepared to seek the BCR waivers, EP has contacted the unemployment insurance agencies in both states. We are waiting for confirmation that they are proceeding with the waiver applications and will not take any adverse action to reduce their UI trust fund solvency during this time period. Please know that we will continue to closely monitor this situation.

EP has also confirmed that other motion picture payroll service providers will be charging this BCR to its clients in 2025.

We understand the BCR represents an appreciable increase in your payroll tax charges for 2025 and comes at a challenging time for the industry. We encourage you to contact Entertainment Partners with any questions or concerns.