Filter Articles

States Face FUTA Credit Reduction for 2016

States Face FUTA Credit Reduction for 2016

Due to ongoing economic conditions, some states had to borrow money from the federal government in order to meet Unemployment Insurance benefit obligations. All states have been able to repay the loan with the exception of California and the Virgin Islands. Because of this, there will be a reduction in the credit some employers receive toward their Federal Unemployment Tax Act (FUTA) taxes for the calendar year 2016. The increased revenue associated with this reduced credit will be used by the federal government to repay the loan.Under the Federal Unemployment Tax Act (FUTA), employers typically pay an annual FUTA tax rate of only 0.6% because the 6.0% tax rate is offset by a federal credit of 5.4%. However, by law, after a state has had an outstanding loan balance for two consecutive years they will face a reduction in the 5.4% credit if the loan is not paid by November 10 in the same year.

Under the Federal Unemployment Tax Act (FUTA), employers typically pay an annual FUTA tax rate of only 0.6% because the 6.0% tax rate is offset by a federal credit of 5.4%. However, by law, after a state has had an outstanding loan balance for two consecutive years they will face a reduction in the 5.4% credit if the loan is not paid by November 10 in the same year.

What does this mean?

If you have employees in California or the Virgin Islands, Payroll Solutions will recover the FUTA amounts due by processing a one-time adjustment run. If applicable, you will be notified of the date and amount of the FUTA adjustment.

State Credit Reduction California 1.8%

The Virgin Islands 1.8%

Request a Consultation

Contact Payroll Solutions

Want to learn more about the services we offer?

Back to Top