An important update has emerged that affects the Federal Unemployment Tax Act (FUTA) credit for California employers, and I wanted to ensure you're aware of the implications for your business. Here's a succinct summary of the situation:
Background on FUTA Credit Reductions:
Employers in states with outstanding Title XII advances for two or more consecutive years as of January 1, and who still have balances on November 10, face a reduction in their FUTA tax credit.
An additional credit reduction applies if advances are outstanding on five or more consecutive January 1 and have a balance on November 10, unless certain state conditions for waiver are met.
2023 Status for Affected States:
California and New York did not repay their outstanding advances by November 10, 2023, resulting in a FUTA credit reduction of 0.6% for employers in these states for 2023.
Connecticut and Illinois successfully repaid their outstanding advances before November 10, 2023, so their employers are not subject to the FUTA credit reduction for 2023.
The US Virgin Islands have had outstanding advances for multiple years but obtained a waiver for the additional credit reduction. Nevertheless, employers in the USVI will face a standard FUTA credit reduction of 3.9% for 2023.
For California specifically, this means:
FUTA Credit Reduction for California:
Employers in California will experience a reduction of 0.6% in their FUTA tax credit for the year 2023.
This reduction arises from the failure to repay outstanding advances before the cutoff date of November 10, 2023.
This credit reduction will affect the overall FUTA tax liability for your business, potentially resulting in a higher tax due on your FUTA return. It's important to adjust your payroll tax calculations accordingly and prepare for this change when completing your end-of-year tax filings.
If you require clarification on these changes, need assistance with your FUTA tax calculation, or have any other tax-related inquiries, our team is readily available to assist you.