According to the federal Labor Department’s Office of Unemployment Insurance, the reductions in the credit that employers can apply to their federal unemployment tax rate will be in effect for 2015 again for employers in those states that are still working to repay their loans from the federal unemployment account. These continued FUTA credit reductions will impact payroll management for California employers.
FUTA Tax and California Employers
For California employers, the looming specter of ongoing and increasing FUTA tax rates remains. The projection of increases through 2018 is also a sobering reminder of the fiscal state of California.
Navigating the FUTA Credit Reductions
Normally, the standard Federal Unemployment Tax Act (FUTA) rate for employers is 6 percent on the first $7,000 of covered wages. And employers generally receive a FUTA credit reduction of 5.4 percent for any state unemployment insurance (UI) taxes they must pay. This reduces the FUTA rate for most of these employers to 0.6 percent of the wages paid - up to a limit of $7,000 per worker - or $42 per employee per year.
Payroll managers in California need to take note of the recent notice from the Federal government regarding the status of the 2014 FUTA credit reduction process. Recently, the U.S. Department of Labor notified the Internal Revenue Service (IRS) and the California Employment Development Department that California is once again a credit reduction state as a result of its outstanding loan balances.