When a state borrows UI funds from the Federal Unemployment Account (FUA), and does not repay it within two years, that state is designated as a “credit reduction state” and its FUTA tax typically increases by 0.3% per year until loans are repaid.
For 2016, California’s FUTA tax percentage is estimated at 2.4%
Credit Reduction State percentage to increase to 2.4% - both California and the Virgin Islands requested a waiver from the BCR Add-on tax for 2016, and the U.S. Department of Labor (DOL) granted the BCR waiver requests.
According to the IRS, the sole purpose of this additional tax is to recover funds provided by the federal government from its Federal Unemployment Account (FUA) to help states cover their unemployment benefit liabilities.
Keep in mind that this tax is paid by employers and is not withheld from employees’ wages.
To help you prepare for this possibility, Accuchex has developed a free online FUTA Tax Calculator. Use this calculator now to calculate the estimated effect of these FUTA Tax increases on your business.
For payroll managers, keeping up to date with continually changing Federal and State regulations and new legislation is a never-ending task.
While some things, such as FUTA credit reductions, may be beyond your control, the consequences of mis-filing taxes, missing payments, or other withholding and tax filing errors can be costly for a business.
If Accuchex is not currently filing your taxes or helping you to integrate your time and attendance with payroll, call to find out how we can smooth these processes for your business.