What Employers Need to Know
The Federal government has identified California as facing a Federal Unemployment Tax (FUTA) credit reduction for 2017 due to another unpaid federal loan the State has taken. This means that if you are subject to FUTA and had any employees with taxable wages in the State, you must pay an additional amount in FUTA retroactively to January 1st, 2017.
The Fine Print
If you had any employee receive taxable wages in California for 2017, the credit reduction rate will be 2.1% on FUTA applicable wages paid to employees. The outstanding loan balances result in employers paying additional federal unemployment tax of up to $147 per employee beyond the standard FUTA cost of up to $42 per employee. This includes employees terminated in 2017. The amount will be less if an employee earned less than $7,000 in 2017.
How Pacific Payroll Group, LLC Helps
Pacific Payroll handles all payroll tax paperwork, filings, and payments for FUTA, keeping you in compliance:
- State-level system update of credit reduction rates
- Automatic calculation of the FUTA credit reduction with your last scheduled payroll of the year
- Personal review of all FUTA accounts in January to ensure all accounts are paid
- Preparation and filing of Form 940
Should you have any further questions, please reach out to our office.
For Those Who Love Reading About FUTA
Employers pay FUTA tax at a rate of 6.0% on the first $7,000 of covered wages paid to each employee during a calendar year, regardless of when those wages were earned. This tax may be offset by credits of up to 5.4% (known as the “normal credit” and “additional credit”) against their FUTA tax liability for amounts paid to a state unemployment fund. The net FUTA tax rate for most employers is 0.6% (i.e., 6.0% − 5.4%).
Why Are We Finding Out Now?
Under Title XII of the Social Security Act, States with financial difficulties can borrow funds from the federal government to pay unemployment benefits. If a state defaults on its repayment of the loan, the amount of state unemployment tax credits that employers in the state may claim is reduced.
Pacific Payroll Group, LLC is not responsible for taxes that we cannot collect from any client and/or are not authorized to collect.