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HR and Payroll Blog

Additional FUTA Tax May Be Due: California Employers are Affected

Carol Eberhart - Friday, December 23, 2011

The Department of Labor has announced that 20 states have outstanding federal loans taken to fund unemployment benefits programs. States with outstanding loans lose a portion of the credit against the Federal Unemployment Tax (FUTA), resulting in a higher employer tax rate on 2011 wages.

What are the states involved in the credit reduction for 2011?
Arkansas, California, Connecticut, Florida, Georgia, Indiana, Illinois, Kentucky, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia and Wisconsin. The U.S. Virgin Islands also has a credit reduction for 2011.

What does this mean to employers in those states?
Employers have a higher FUTA tax rate in 2011. FUTA is an employer-only tax and employees are not affected.
Additional amounts will be collected for FUTA based on 2011 year-to-date taxable wages.
The maximum additional amount owed by employers for an employee earning $7,000 or more in 2011 varies by state:
Michigan's credit is reduced by 0.9% resulting in an additional $63 per employee.
Indiana's credit is reduced by 0.6% resulting in an additional $42 per employee.
For the remaining states and the U.S. Virgin Islands, the credit is reduced by 0.3% resulting in an additional $21 per employee.  (This applies to California.)

Additional information may be obtained from the following websites.
California Employment Development Department: 
http://edd.ca.gov/Payroll_Taxes/Payroll_Taxes_News.htm
Internal Revenue Service: 
www.irs.gov
Employers will use IRS Schedule A (Form 940), Part 2, to calculate the FUTA tax.  http://www.irs.gov/pub/irs-pdf/f940sa.pdf)

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