Form 940 (FUTA) for 2011 Includes List of Credit Reduction States

As we told you last year, there are a growing number of states in default on their Federal loans that will increase the amount you pay for Federal Unemployment Tax (FUTA).

The 2011 version of Form 940 takes into account the elimination of the 0.2% federal unemployment tax (FUTA) surtax, effective beginning with wages paid on July 1, 2011.  The surtax was part of the 6.2% gross unemployment tax rate that employers paid on the first $7,000 of wages paid annually to each employee (6% permanent tax rate, 0.2% temporary surtax). The FUTA tax rate, before consideration of state unemployment tax credits, is 6.0%, effective with wages paid beginning July 1, 2011. Employers in 30 states are allowed to claim 5.4% in state unemployment tax credits (known as the “normal credit”) against the FUTA tax rate if they timely pay their state unemployment taxes, making the net FUTA rate 0.6%, beginning with wages paid on July 1 (0.8% on wages paid from January 1 to June 30, 2011). The other 20 states are “credit reduction” states that aren’t allowed to claim the full 5.4% in state unemployment tax credits against the FUTA tax rate.

 The 2011 version of Schedule A lists the following states as 0.3% credit reduction states:

Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, the Virgin Islands, and Wisconsin.

Michigan employers will be subject to a 0.9% credit reduction, because of Michigan’s failure to repay its outstanding federal loans for four consecutive years. Indiana employers will be subject to a 0.6% credit reduction, because of Indiana’s failure to repay its outstanding federal loans for three consecutive years.

 If you have any questions regarding your FUTA tax liability, please do not hesitate to contact us.

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