FUTA Credit Reduction 2017
California is the only state not to have met the terms of their Title XII federal loans for 2017. As a result, employers with California employees are subject to additional employer 940 Federal Unemployment tax liabilities this year.
In early January 2018, we will be calculating the specific impact for each employer with employees in California. We will follow up with you directly providing the detailed liability reports and the specific additional amount due based on your company's full-year employment data. We will give you a week notice and then will collect the additional liabilities on January 18, 2018.
In general terms, you can expect the additional FUTA tax to amount to $147 per employee. The exact amount is a calculation based on each employee's wage total for the year. If an employee received $7,000 or more in taxable wages for 2017, the amount will be $147 for that employee. For all employees paid less than $7,000 for the year, the calculation will be (employee taxable wage total x 2.1%).
Additional details for reference: the real or nominal rate of Federal Unemployment tax is 6.0%, but it includes a 5.4% credit to employers that pay State unemployment taxes. Due to the stipulations in the Title XII loans, the Fed as a means of collection may waive a portion of the credit on employers until such time the individual state’s loan terms have been met. Because the FUTA or FUI credit has been reduced, employers in these states are subject to higher Federal/940 unemployment taxes retroactive to January 1, 2017. The liabilities as a result of these credit reductions become due with the 4thQ 2017 payments ASAP paid to the IRS at the end of January 2018.
IRS Explanation: FUTA Credit Reduction:
IRS Video: FUTA Credit Reduction