Wednesday, November 21, 2012

What is a FUTA Tax Surcharge?

FUTA Tax Surcharges – Form 940 Schedule A for 2012

Some states have borrowed from the Federal government to pay unemployment benefits and have not yet repaid the money. As a result employers with payroll in those states have a “credit reduction” that applies to effectively reduce the maximum .054 credit. The reduction in the credit means a net increase in the FUTA taxes due for the year.

When a state borrows from the Federal government and does not repay the funds by the end of the year AFTER the year of the borrowing, the credit drops by .003 (.3%).  If the funds are not paid by the end of the following year, the credit decreases by an additional .003.  Each year that the funds are not repaid results in an additional .003 (.3%) credit decrease.

As of November 10, 2012, the following states have not repaid their borrowed monies and therefore the credit reduction indicated applies.  If any of these states repays its entire borrowed monies by December 31, 2012, the reduction does not apply, but such a repayment is not expected to happen.

Indiana – 0.9% reduction in the credit due to four years of non-repayment, effectively resulting in a FUTA rate of 1.5%.

Arkansas, California, Connecticut, Florida, Georgia, Kentucky, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, and Wisconsin – 0.6% reduction in the credit due to three years of non-repayment  effectively resulting in a FUTA rate of 1.5%.

Arizona, Delaware, and Vermont – 0.3% reduction in the credit due to two years of non-repayment  effectively resulting in a FUTA rate of 0.9%.

Michigan – not on the list this year which means it must have repaid its borrowed funds.

The credit reduction is shown on Schedule A (Form 940) and then carried to the Form 940. Affected employers (those required to make deposits of FUTA taxes) should take this reduction in the credit into account when calculating the fourth quarter deposit.

This adjustment is above and beyond any invoices the employers have received from their states for the interest on the borrowed funds.

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