FUTA Credit Reduction 2015 - California
FUTA Credit Reductions due to State Loans
Under the joint federal/state unemployment insurance system, states with a high rate of unemployment and difficulty meeting their benefit obligations can borrow money from the Federal Unemployment Account (FUA) to pay benefits. If loans taken out during one year are not repaid by the end of the following calendar year, the FUTA credits for employers in those states are reduced, with the extra FUTA taxes paid being applied against each state’s loan balance.
A state with an outstanding loan can avoid a credit reduction for its employers by repaying the loan by November 10 of the year the reduction is scheduled to take effect. If the loan is not repaid by the date, a credit reduction of 0.3% goes into effect with employers in that state having their maximum credit reduced to 3.9% (5.4%-1.50%). For each additional year that the loan remains unpaid an additional credit reduction of 0.3% is taken. This is California’s 5th year the loan is unpaid.
California will be subject to a FUTA credit reduction for 2015 of 1.5%
In short, with the reduction in FUTA credits by 1.5% your FUTA tax liability will go up by 1.5% and will be paid in January so when the 940 FUTA Tax form is E-filed the balance owed will be zero.
The FUTA limit is $7,000 per employee per calendar year, so for every employee that was paid $7000 or more between January and December 2015, the employer paid .6% which equals $42 per employee ($7000 x .6% = $42). In January 2016, employers will pay 1.5% more, so an additional $105 per employee ($7,000 x 1.5% = $105). To be prepared for this in January 2016, here are some estimates based on number of employees that made $7,000 or more in 2015.
5 Employees = $525
10 Employees = $1,050
20 Employees = $2,100
50 Employees = $5,250
100 Employees = $10,500