Employers Pay The FUTA Price Of Their State's Lack Of Financial Discipline

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Explore:  FUTA

Employers pay federal unemployment tax (FUTA) at a rate of 6.0% on the first $7,000 of covered wages paid to each employee each year. However, employers can offset this tax with credits of up to 5.4% (the “normal credit”)  for amounts paid to a state unemployment fund by January 31 of the subsequent year. Thus, the net FUTA rate for many employers is only 0.6%.

Under federal law, states with financial difficulties can borrow funds from the federal government to pay unemployment benefits. However, if a state defaults on its repayment of the loan for at least 2 years, the normal credit available is reduced. This effectively increases the employer's FUTA tax rate by 0.3% for each year in which the loan isn't repaid. Are there states out there that have defaulted on repayment? Of course.

Is your state on the default list? Here is the list and how much it is costing their employers:

--0.9% credit reduction - Indiana.

--0.6% credit reduction - Arkansas, California, Connecticut, Florida, Georgia, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, and Wisconsin.

--0.3% credit reduction - Arizona, Delaware, and Vermont.

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Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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Charles (Chuck) Rubin
Gutter Chaves Josepher Rubin Forman Fleisher P.A.

A tax and business attorney who assists clients in preserving & enhancing individual, family &... View Profile »


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