Employers Could Owe Additional FUTA Tax for 2013

Dec. 5, 2013

Employers filing IRS Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2013 could face higher-than-expected liabilities as a result of reduced credits for state unemployment taxes.

Employers are subject to the Federal Unemployment Tax Act (FUTA) and pay 6 percent on the first $7,000 of covered wages paid to an employee during a calendar year. A credit for state unemployment taxes paid is available to offset up to 5.4 percent of the employer’s FUTA liability.

States encountering financial difficulty can borrow money from the federal government to cover their unemployment benefits. However, if a state does not timely repay those loans, employers in that state are subject to a reduction in the FUTA credit. The Department of Labor recently released a list of states and territories that have not repaid their loans and the corresponding credit reduction:

State/Territory Credit Reduction
Arkansas .90%
California .90%
Connecticut .90%
Delaware .60%
Georgia .90%
Indiana 1.20%
Kentucky .90%
Missouri .90%
New York .90%
North Carolina .90%
Ohio .90%
Rhode Island .90%
Virgin Islands 1.20%
Wisconsin .90%


More information on the FUTA credit reduction is available on the IRS website.

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David Holets
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Howard Wagner
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