2022 FUTA Credit Reductions

2022 FUTA Credit Reductions

The US Department of Labor has announced that four states will be subject to a FUTA Credit reduction; California, Connecticut, Illinois, and New York. These states had outstanding loans from the Federal Unemployment Trust Fund as of November 10, 2022. These loans all stem from the 2020 COVID-19 Pandemic where states took loans from the federal government to meet its unemployment benefits liability for the year. The states were each given a two-year period to repay the amount back in full without being subject to the credit reduction. The list of states could have been as high as nine but the other states paid back their loans in full.
The standard FUTA rate is 6.0% on the first $7,000 of employee wages. Employers in most states will receive a credit of 5.4% against the rate, resulting in a net tax rate of 0.6%. Because of this credit reduction, the net tax rate will now become 0.9% for employers in the above listed states. Although the change may be small, the impact could be significant if employers have a large number of employees. Typically, an employers’ FUTA Liability would be $42 per employee ($7,000 x 0.6% net tax rate). But with the credit reduction, that liability will now jump up to $63 per employee ($7,000 x 0.9% net tax rate).
The FUTA credit reduction is retroactive to the first quarter of 2022 and employers can expect a larger fourth quarter FUTA payment than usual. Third-party payroll providers will start collecting the additional FUTA funds starting December 1, 2022 through all processed payrolls.

For a .pdf version of this memo follow this link: https://flcpas.com/wp-content/uploads/2022/12/2022-FUTA-Credit-Reductions.pdf

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