What is a FUTA Credit Reduction?
Sometimes a state takes loans from the Federal Unemployment Trust Fund if it lacks the funds to pay unemployment insurance benefits for its residents. If a state has outstanding loan balances for two consecutive years, the FUTA credit rate for employers in that state will be reduced until the loan is repaid, ultimately requiring employers to pay additional unemployment tax when filing Form 940 and Schedule A for 2016, which will be due by January 31, 2017. OnPay will be drafting for the FUTA Credit Reduction on January 19, 2017. You will receive an email at the beginning of January notifying you of the amount OnPay will be drafting. It will also be an alert displayed in your account.
The reduction schedule is 0.3% for each year in arrears. For those states that are four years in arrears, the credit reduction is 1.2%; three years in arrears, the credit reduction is 0.9%; two years in arrears, the credit reduction is 0.6%; and one year in arrears, the credit reduction is 0.3%.
If OnPay is unable to make your FUTA Credit Reduction payment on your behalf, you will need to make the payment directly to the IRS through EFTPS.gov. If you have never accessed EFTPS.gov, please contact them directly at 1.800.555.4477 for more information regarding making the payment. No OnPay agent can help you set up an EFTPS account.
The Credit Reduction State and corresponding Reduction Rate are as follows for 2016:
The Credit Reduction States and corresponding Reduction Rates are as follows for 2015:
The Credit Reduction States and corresponding Reduction Rates are as follows for 2014:
North Carolina: 1.20%
New York: 1.20%
The Credit Reduction States and corresponding Reduction Rates are as follows for 2013:
New York: 0.90%
North Carolina: 0.90%
Rhode Island: 0.90%
Virgin Islands: 1.20%
More information may be found on the 940 Schedule A.