PAYDAY Workforce Solutions Blog

FUTA Tax Credit Reduction

Last month, PAYDAY Workforce Solutions advised employers to expect the FUTA Credit Reduction in California for the tax year 2013. The final list of Credit Reduction States was just announced yesterday by the U.S. Department of Labor. The list identifies 13 states (including California) plus the U.S. Virgin Islands - all of which have been considered Credit Reduction States in previous years.

This year's credit reductions range from 0.6% to 1.2% in additional FUTA taxes. This means the Effective FUTA Rates will go up - ranging from 1.2% to 1.8% of the first $7,000 in wages for all employees. California employers will incur a 0.9% credit reduction and an Effective Rate of 1.5% for 2013 FUTA taxes, which amounts to a maximum additional tax of $63 per employee. There were 5 states that were on the 2012 list that have managed to avoid the Credit Reduction for 2013: Arizona, Florida, Nevada, New Jersey and Vermont were all absent from this year's announcement. Please see below for a list of all 2013 Credit Reduction states.

State Credit Effective
Reduction Rate
Arkansas 0.9% 1.5%
California 0.9% 1.5%
Connecticut 0.9% 1.5%
Delaware 0.6% 1.2%
Georgia 0.9% 1.5%
Indiana 1.2% 1.8%
Kentucky 0.9% 1.5%
Missouri 0.9% 1.5%
New York 0.9% 1.5%
North Carolina 0.9% 1.5%
Ohio 0.9% 1.5%
Rhode Island 0.9% 1.5%
Virgin Islands 1.2% 1.8%
Wisconsin 0.9% 1.5%

When a state is determined to be a Credit Reduction State, employers are expected to "make up" the tax payments in a shorter period of time than FUTA is normally collected and paid. The FUTA tax is due on the same schedule, but retroactive for the entire tax year. According to the IRS, “Any increased FUTA tax liability due to a credit reduction is considered incurred in the fourth quarter and is due by Jan. 31 of the following year.”

Read more about the FUTA calculations and how the Credit Reduction States are determined here.

PAYDAY is prepared to handle this for our clients across the country, and will be sending notification on the process within the next two weeks. Please feel free to contact us for more information on the requirements and how it will affect your business.

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