Daycare Tax Tips

California No Longer a FUTA Credit Reduction State

Additional federal unemployment tax does NOT apply for 2018


Normally, the federal unemployment (FUTA) tax rate is 6.0% on the first $7,000 in eligible wages paid to each employee. In states where employers pay unemployment tax on both the state and federal level, however, they generally receive a FUTA Credit of 5.4%, which reduces the federal tax to just 0.6%.

Unfortunately, California has had to take loans from the Federal Unemployment Trust Fund because the state lacks sufficient funds to pay unemployment insurance benefits. Because of the outstanding federal loans, state employers had to pay an additional 1.8% in FUTA tax for 2016. (Payable in January 2017.)

California employers are repaying the cost of state loans as part of their FUTA tax liability, which is computed on Schedule A and paid when filing Form 940 at the end of the year. The additional FUTA tax amount for 2016 is $126 for every employee paid at least $7,000. (A lower amount applies for employees earning less than that.)

Last updated: 27 February 2019

Posted on 2013-12-12 05:58:35