20 C.F.R. PART 606—TAX CREDITS UNDER THE FEDERAL UNEMPLOYMENT TAX ACT; ADVANCES UNDER TITLE XII OF THE SOCIAL SECURITY ACT
Title 20 - Employees' Benefits
Authority: 42 U.S.C. 1102; 26 U.S.C. 7805(a); Secretary's Order No. 4–75 (40 FR 18515).
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.
(a) In general. The regulations in this part 606 are issued to implement the tax credit provisions of the Federal Unemployment Tax Act, and the loan provisions of title XII of the Social Security Act. The regulations on tax credits cover all of the subjects of 3302 of the Federal Unemployment Tax Act (FUTA), except subsections (c)(3) and (e). The regulations on loans cover all of the subjects in title XII of the Social Security Act. (b) Scope. This part 606 covers general matters relating to this part in this subpart A, and in the following subparts includes specific subjects described in general terms as follows: (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. 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. For the purposes of the Acts cited and this part— (a) Act means as appropriate the Federal Unemployment Tax Act (26 U.S.C. 3301–3311), or title XII of the Social Security Act (42 U.S.C. 1321–1324). (b) Advance means a transfer of funds to a State unemployment fund, for the purpose of paying unemployment compensation, from the Federal unemployment account in the Unemployment Trust Fund, pursuant to section 1202 of the Social Security Act. (c) Benefit-cost ratio for cap purposes for a calendar year is the percentage obtained by dividing— (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(l)) with respect to such calendar year. 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. (d) Contributions means payments required by a State law to be made into an unemployment fund by any person on account of having individuals in his employ, to the extent that such payments are made by him without being deducted or deductible from the remuneration of individuals in his employ. (e) Federal unemployment tax means the excise tax imposed under section 3301 of the Federal Unemployment Tax Act on employers with respect to having individuals in their employ. (f) Fiscal year means the Federal fiscal year which begins on October 1 of a year and ends on September 30, of the next succeeding year. (g) FUTA refers to the Federal Unemployment Tax Act. (h) State unemployment fund or unemployment fund means a special fund established under a State law for the payment of unemployment compensation to unemployed individuals, and which is an “unemployment fund” as defined in section 3306(f) of the Federal Unemployment Tax Act. (i) Taxable year means the calendar year. (j) Unemployment tax rate means, for any taxable year and with respect to any State, the percentage obtained by dividing the total amount of contributions paid into the State unemployment fund with respect to such taxable year by total wages as defined in §606.3(l). (k) Wages, taxable means the total sum of remuneration which is subject to contributions under a State law. (l) Wages, total means the total sum of all remuneration covered by a State law, disregarding any dollar limitation on the amount of remuneration which is subject to contributions under the State law. [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35513, June 21, 2006] (a) Redelegation to OWS Administrator. The Administrator, Office of Workforce Security (hereinafter “OWS Administrator”), is redelegated authority to make the determinations required under this part. This redelegation is contained in Employment and Training Order No. 1–84, published in the (b) Delegation by Governor. The Governor of a State, as used in this part, refers to the highest executive official of a State. Wherever in this part an action is required by or of the Governor of a State, such action may be taken by the Governor or may be taken by a delegatee of the Governor if the Department is furnished appropriate proof of an authoritative delegation of authority. [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35514, June 21, 2006] 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. 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] (a) Applicability. Subsection (f) of section 3302 of FUTA authorizes a limitation (cap) on the reduction of tax credits by reason of an outstanding balance of advances, if the OWS Administrator determines with respect to a State, on or before November 10 of a taxable year, that— (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(j)) for the taxable year equals or exceeds the average benefit-cost ratio (as defined in §606.3(c)) 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. If a State qualifies for a cap, the maximum tax credit reduction for the taxable year shall not exceed 0.6 percent, or, if higher, the tax credit reduction that was in effect for the taxable year preceding the taxable year for which the cap is requested. (c) Year not taken into account. If a State qualifies for a cap for any year, the year and January 1 of the year to which the cap applies will not be taken into account for purposes of determining reduction of tax credit for subsequent taxable years. (d) Partial caps. Partial caps obtained under subsection (f)(8) are no longer available. Nevertheless, for the purposes of applying section 3302(c)(2) to subsequent taxable years, partial cap credits earned will be taken into account for purposes of determining reduction of tax credits. Also, the taxable year to which the partial cap applied (and January 1 thereof) will be taken into account for purposes of determining reduction of tax credits for subsequent taxable years. (a) Reduction in unemployment tax effort. (1) For purposes of paragraph (a)(1) of §606.20, a reduction in a State's unemployment tax effort will have occurred with respect to a taxable year if any action is or was taken (legislative, judicial, or administrative,) that is effective during the 12-month period ending on September 30 of such taxable year, which has resulted in or will result in a reduction of the amount of contributions paid or payable or the amounts that were or would have been paid or payable but for such action. (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. For purposes of paragraph (a)(2) of §606.20, a net decrease in the solvency of the State's unemployment compensation system will have occurred with respect to a taxable year if any action is or was taken (legislative, judicial, or administrative), that is effective during the 12-month period ending on September 30 of such taxable year, which has resulted in or will result in an increase in benefits without at least an equal increase in taxes, or a decrease in taxes without at least an equal decrease in benefits. Notwithstanding the foregoing criterion, a decrease in solvency resulting from any provision of the State law enacted prior to August 13, 1981, will not be taken into account as a reduction in solvency of the State's unemployment compensation system for the purposes of this section. (c) State unemployment tax rate. For purposes of paragraph (a)(3) of §606.20, the State unemployment tax rate is defined in §606.3(j). If such percentage is not a multiple of 0.1 percent, the percentage shall remain unrounded. (d) State five-year average benefit cost ratio. For purposes of paragraph (a)(3) of §606.20, the average benefit cost ratio for the five preceding calendar years is the percentage determined by dividing the sum of the benefit cost ratios for the five years by five. If such percentage is not a multiple of 0.1 percent, the percentage shall remain unrounded. (a) Application. (1) The Governor of the State shall make application, addressed to the Secretary of Labor, no later than July 1 of a taxable year with respect to which a State requests a cap on tax credit reduction. The Governor is required to notify the Department on or before October 15 of such taxable year of any action occurring after the date of the initial application and effective prior to October 1 of such year that would impact upon the State's 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 (b) Anticipated impact statement. In support of the application by the Governor, there shall be submitted with the application (on or before October 15), for the purposes of the criteria described in §§606.20(a) (1) and (2) and 606.21 (a) and (b), a description of all statutory provisions enacted or amended, regulations adopted or revised, administrative policies and procedures adopted or revised, and judicial decisions given effect, which are effective during the 12-month period ending on September 30 of the taxable year for which a cap on tax credit reduction is requested, and an anticipated impact statement (AIS) for each such program action in the following respect— (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(f)) which ends on such September 30. (c) Unemployment tax rate. With respect to the unemployment tax rate criterion described in §§606.20(a)(3) and 606.21(c), the application shall include an estimate for the taxable year with respect to which a cap on tax credit reduction is requested and actual data for the prior two years as follows: (1) The amount of taxable wages as defined in §606.3(k); (2) The amount of total wages as defined in §606.3(l); and (3) The estimated distribution of taxable wages, as defined in §606.3(k), by tax rate under the State law. (d) Benefit cost ratio. With respect to the benefit cost ratio criterion described in §§606.20(a)(3) and 606.21(d), the application shall include for each of the five calendar years prior to the taxable year for which a cap on tax credit reduction is requested, the following data: (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(l)) with respect to such calendar year. (e) Documentation required. Copies of the sources of or authority for each program action described in paragraph (b) of this section shall be submitted with each application for a cap on tax credit reduction. In addition, a notation shall be made on each AIS of where all figures referred to are contained in reports required by the Department or in other data sources. (f) State contact person. The Department may request additional information or clarification of information submitted bearing upon an application for a cap on tax credit reduction. To expedite requests for such information, the name and telephone number of an appropriate State official shall be included in the application by the Governor. (a) Applicability. Subsection (g) of section 3302 of FUTA authorizes a State to avoid a tax credit reduction for a taxable year by meeting the three requirements of subsection (g). These requirements are met if the OWS Administrator determines that: (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. (1) The net increase in solvency for a taxable year, as determined for the purposes of paragraph (a)(3) of this section, must be attributable to legislative changes made in the State law after the later of— (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. If a State qualifies for avoidance for any year, that year and January 1 of that year to which the avoidance applies will be taken into account for purposes of determining reduction of tax credits for subsequent taxable years. (a) Application. (1) The Governor of the State shall make application, addressed to the Secretary of Labor, no later than July 1 of a taxable year with respect to which a State requests avoidance of tax credit reduction. The Governor is required to notify the Department on or before October 15 of such taxable year of any action impacting upon the State's application occurring subsequent to the date of the initial application and on or before November 10. (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 (b) Information. (1) The application shall include a statement of the amount of advances repaid and to be repaid during the one-year period ending on November 9 of the taxable year for which avoidance is requested. If the amount repaid as of the date of the application is less than the amount required to satisfy the provisions of §606.23(a)(1), the Governor shall provide a report later of the additional repayments that have been made in the remainder of the one-year period ending on November 9 of the taxable year, for the purposes of meeting the provisions of §606.23(a)(1). (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. 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). (a) Application. The Governor of the State shall make application addressed to the Secretary of Labor, no later than July 1 of a taxable year with respect to which a State requests waiver and substitution. Any such application shall contain the supportive data and information required by §606.22(b) for the purposes of §§606.20(a)(2) and 606.21(b). The Governor is required to notify the Department on or before October 15 of such taxable year of action occurring after the date of the initial application and effective prior to October 1 of such year that would impact upon the State's application. (b) Notification of determination. The OWS Administrator will make a determination on the application as of November 10 of the taxable year, will notify the applicant and the Secretary of the Treasury of the resulting tax credit reduction to be applied, and will cause notice of such determination to be published in the 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 ( [53 FR 37429, Sept. 26, 1988, as amended at 71 FR 35514, June 21, 2006] (a) Payment of interest. Except as otherwise provided in paragraph (b) of this section each State shall pay interest on any advance made to such State under title XII of the Social Security Act. (b) Cash flow loans. Advances repaid in full prior to October 1 of the calendar year in which made are deemed cash flow loans and shall be free of interest; provided, that the State does not receive an additional advance after September 30 of the same calendar year. If such additional advance is received by the State, interest on the completely repaid earlier advance(s) shall be due and payable not later than the day following the date of the first such additional advance. The administrator of the State agency shall notify the Secretary of Labor no later than September 10 of those loans deemed to be cash flow loans and not subject to interest. This notification shall include the date and amount of each loan made in January through September and a copy of documentation sent to the Secretary of the Treasury requesting loan repayment transfer(s) from the State's account in the Unemployment Trust Fund to the Federal unemployment account in such Fund. 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., September 30) and in the same manner as if the interest due on the advance(s) was an advance made on such due date. The Governor of a State which has decided to delay such interest payment shall notify the Secretary of Labor no later than September 1 of the year with respect to which the delay is applicable. (a) Applicability. Subsection (b)(3)(C) of section 1202 of the Social Security Act permits a State to defer payment of, and extend the payment for, 75 percent of interest charges otherwise due prior to October 1 of a year if the OWS Administrator determines that high unemployment conditions existed in the State. (b) High unemployment defined. For purposes of this section, high unemployment conditions existed in the State if the State's rate of insured unemployment (as determined for purposes of 20 CFR 615.12) under the State law with respect to the period consisting of the first six months of the preceding calendar year equalled or exceeded 7.5 percent; this means that in weeks 1 (that week which includes January 1 of the year) through 26 of such preceding calendar year, the rate of insured unemployment reported by the State and accepted by the Department under 20 CFR part 615 must have averaged a percentage equalling or exceeding 7.5 percent. (c) Schedule of deferred payments. The State must pay prior to October 1 one-fourth of the interest due, and must pay a minimum of one-third of the deferred amount prior to October 1 in each of the three years following the year in which deferral was granted; at the State's option payment of deferred interest may be accelerated. (d) Related criteria. Timely payment of one-fourth of the interest due prior to October 1 is a precondition to obtaining deferral of payment of 75 percent of the interest due. No interest shall accrue on such deferred interest. (e) Application for deferral and determination. (1) The Governor of a State which has decided to request such deferral of interest payment shall apply to the Secretary of Labor no later than July 1 of the taxable year for which the deferral is requested. (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. (a) Applicability. Paragraph (9) of section 1202 (b) of the Social Security Act permits a State to delay for a period not exceeding nine months the interest payment due prior to October 1 if, for the most recent 12-month period prior to such October 1 for which data are available, the State had an average total unemployment rate of 13.5 percent or greater. (b) Delayed due date. An interest payment delayed under paragraph (9) must be paid in full not later than the last official Federal business day prior to the following July 1; at the State's option payment of delayed interest may be accelerated. No interest shall accrue on such delayed payment. (c) Application for delay in payment and determination. (1) The Governor of a State which has decided to request delay in payment of interest under paragraph (9) shall apply to the Secretary of Labor no later than July 1 of the taxable year for which the delay is requested. (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. 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
Title 20: Employees' Benefits
PART 606—TAX CREDITS UNDER THE FEDERAL UNEMPLOYMENT TAX ACT; ADVANCES UNDER TITLE XII OF THE SOCIAL SECURITY ACT
Section Contents
§ 606.1 Purpose and scope.
§ 606.2 Total credits allowable.
§ 606.3 Definitions.
§ 606.4 Redelegation of authority.
§ 606.5 Verification of estimates and review of determinations.
§ 606.6 Information, reports, and studies.
§ 606.20 Cap on tax credit reduction.
§ 606.21 Criteria for cap.
§ 606.22 Application for cap.
§ 606.23 Avoidance of tax credit reduction.
§ 606.24 Application for avoidance.
§ 606.25 Waiver of and substitution for additional tax credit reduction.
§ 606.26 Application for waiver and substitution.
§ 606.30 Interest rates on advances.
§ 606.31 Due dates for payment of interest. [Reserved]
§ 606.32 Types of advances subject to interest.
§ 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]
§ 606.40 May/September delay.
§ 606.41 High unemployment deferral.
§ 606.42 High unemployment delay.
§ 606.44 Notification of determinations.
Subpart A—General
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§ 606.1 Purpose and scope.
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§ 606.2 Total credits allowable.
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§ 606.3 Definitions.
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§ 606.4 Redelegation of authority.
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§ 606.5 Verification of estimates and review of determinations.
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§ 606.6 Information, reports, and studies.
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Subpart B—Tax Credit Reduction [Reserved]
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Subpart C—Relief From Tax Credit Reduction
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§ 606.20 Cap on tax credit reduction.
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§ 606.21 Criteria for cap.
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§ 606.22 Application for cap.
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§ 606.23 Avoidance of tax credit reduction.
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§ 606.24 Application for avoidance.
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§ 606.25 Waiver of and substitution for additional tax credit reduction.
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§ 606.26 Application for waiver and substitution.
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Subpart D—Interest on Advances
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§ 606.30 Interest rates on advances.
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§ 606.31 Due dates for payment of interest. [Reserved]
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§ 606.32 Types of advances subject to interest.
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§ 606.33 No payment of interest from unemployment fund. [Reserved]
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§ 606.34 Reports of interest payable. [Reserved]
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§ 606.35 Order of application for repayments. [Reserved]
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Subpart E—Relief from Interest Payment
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§ 606.40 May/September delay.
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§ 606.41 High unemployment deferral.
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§ 606.42 High unemployment delay.
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§ 606.44 Notification of determinations.
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