The DOL released its long-anticipated list of 2011 FUTA “credit-reduction” states on November 18, 2011. Employers in these 20 states and the Virgin Islands will experience associated tax increases.
The standard FUTA rate is 6.0% on the first $7,000 of wages. Employers in most states receive a credit of 5.4% against the rate, resulting in a net tax rate of .6%. However, some states had Federal Unemployment Trust Fund loans – taken to keep their unemployment insurance benefit programs solvent during recent periods of extended high unemployment that were still outstanding. As a result, these states will have their FUTA credit amount reduced for 2011 filing in a way to recover funds still owed to pay back these loans, resulting as noted, in higher taxes for employers in those states.
Instead of the standard 5.4% credit allowed, employers in these states will have a reduced credit of 5.1% for 2011, making their FUTA tax rate .9%.
The following exceptions apply:
Employers in Indiana will have their credit reduced from 5.4% to 4.8% for 2011, making their FUTA tax rate 1.2%
Employers in Michigan will have their credit reduced from 5.4% to 4.5% for 2011, making their FUTA tax rate 1.5%
IMPORTANT NOTE: All rate calculations above are based on the current FUTA rate of 6.0%. This rate has been in effect since 7/1/11, when the .2% FUTA surtax expired. It is not known at this time how the IRS will handle the split year rates on its FUTA credit reduction calculations. Further guidance from the IRS is forthcoming.
The credit reduction only applies to employers who SUI wages to the states listed above. All other employers will receive the full FUTA tax credit of 5.4%.
IRS RULES CHANGE FREQUENTLY. CONSULT YOUR TAX ADVISOR FOR THEIR ASSISTANCE WITH THE ABOVE.
We believe the information above is accurate as of the date published – 11/29/11 – though changes may occur which are NOT reflected above. Schulz Consulting is NOT in the business of providing tax or accounting advice. You are advised to only make changes based on the advised of your financial professional.