2014 FUTA Credit Reduction
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 which is currently 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.
The Department of Labor (DOL) releases a list of states each year subject to a reduction in FUTA credit. A state that has not repaid the money it borrowed from the federal government to pay their unemployment benefits constitutes a credit reduction state. These states are subject to a reduction in the credit for unemployment taxes that can be applied to the overall federal unemployment taxes credit on the IRS Form 940. This additional FUTA tax, resulting from the credit reduction, escalates annually until the loans are repaid. The FUTA tax liability is not due or reportable until January 31, 2015, the filing date for the 2014 Form 940.
2014 FUTA Credit Reduction States and Percentages
- California – 1.2 percent
- Connecticut - 1.7 percent
- Indiana - 1.5 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
How This Impacts Your Company
Your company may be subject to additional FUTA tax for 2014 if you paid wages that are subject to the unemployment tax laws in any of the above listed states. BeyondPay will be capturing this calculation during the 4th Quarter Reconciliation process and you will be notified of any additional amounts due.