Payroll Tax Alert: FUTA Tax Credit Reduction

APS FUTA Tax Reduction Blog

Payroll Tax Alert: FUTA Credit Reductions for 20 States

The IRS released the list of 20 states, referred to as credit reduction states, that 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. A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is called a credit reduction state. This additional FUTA tax, resulting from the credit reduction, escalates annually until loans are repaid; for example, Michigan employers owed $77 per worker in FUTA taxes for 2009, $98 per worker for 2010. The offset generally applies to all employers, except government entities, nonprofit organizations, and Native American tribes. The FUTA tax liability is not due or reportable until January 31, 2012, the filing date for the 2011 Form 940.

How this could effect your company

If you 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 the 0.3 percent reduction, in which each employee makes a minimum of $7,000, will pay an additional $210 or $21 per employee.

Below is the list of credit reduction states with the credit reduction amount:

  • Arkansas 0.3 percent
  • California 0.3 percent
  • Connecticut 0.3 percent
  • Florida 0.3 percent
  • Georgia 0.3 percent
  • Illinois 0.3 percent
  • Indiana 0.6 percent
  • Kentucky 0.3 percent
  • Michigan 0.9 percent
  • Minnesota 0.3 percent
  • Missouri 0.3 percent
  • North Carolina 0.3 percent
  • New Jersey 0.3 percent
  • Nevada 0.3 percent
  • New York 0.3 percent
  • Ohio 0.3 percent
  • Pennsylvania 0.3 percent
  • Rhode Island 0.3 percent
  • Virginia 0.3 percent
  • Wisconsin 0.3 percent

Over the next several weeks, APS will release payroll tax changes that will impact employers and employees. To ensure you receive all the payroll alerts, subscribe to our blog.

This article is for information purposes only. New legislation could change some of the information presented in this article.