FUTA Credit Reductions
What is FUTA?
FUTA is the Federal Unemployment Tax, which provides for payments of unemployment compensation to workers who have lost their jobs. This tax is paid by employers and is not withheld from employees’ wages. The current FUTA tax rate of 6.0% is applied to the federal wage base, the first $7,000 paid to each employee during the year. Employers generally receive a 5.4% credit for state unemployment taxes when they file their Form 940, which results in a 0.6% net FUTA tax rate, or $42.00 per employee.
2014 FUTA Credit Reduction States and Amounts
- California – 1.2 percent
- Kentucky – 1.2 percent
- New York – 1.2 percent
- North Carolina – 1.2 percent
- Ohio – 1.2 percent
- U.S. Virgin Islands – 1.2 percent
Connecticut has a credit reduction of 1.2 percent and a benefit-cost rate (BCR) add-on credit of 0.5 percent for 2014 because the state did not apply for a fifth-year waiver and like the other credit-reduction jurisdictions for 2014 had
a loan balance from the federal unemployment account on Nov. 10. The combined credit reduction of 1.7 percent would increase Connecticut employers’ 2014 federal unemployment tax costs by up to $119 for each employee.
The six credit-reduction jurisdictions for 2013 that will not be credit-reduction jurisdictions for 2014 because they repaid their loan balances from the federal unemployment account are Arkansas, Delaware, Georgia, Missouri, Rhode Island, and Wisconsin.
How This Affects Your Company
If your company is not exempt then you may have to pay more FUTA tax on wages paid that are subject to the unemployment tax laws. For example, a 10 employee company subject to a 0.9% reduction, in which each employee makes a minimum of $7,000, will pay an additional $630.00 or $63.00 per employee.
How APS Can Help
- State-level system update of credit reduction rates
- Notification whether your state has a FUTA credit reduction and what amount is due the first week of January
- Preparation and filing of Form 940