What is FUTA tax?
FUTA (Federal Unemployment Tax Act) is a payroll tax paid by employers on employee wages. FUTA covers the costs of administering the Unemployment and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.
Is my state a FUTA Tax Credit Reduction state?
If your state has taken loans from the federal government to meet its state unemployment benefits liabilities and does not repay the loans within a certain time frame, the state would be considered a FUTA Tax Credit Reduction state.
In previous years, California employers were required to pay an additional tax per employee because the state had an outstanding loan from the federal government. When passing two consecutive January 1’s without a paid off loan, the state is subject to additional reductions in their FUTA credit.
Thankfully for 2018, California did not have an outstanding balance. Hence, there will be no FUTA credit reduction for employers in the state this year and employers will not need to pay additional tax (rejoice!)
For more information regarding the FUTA tax, please refer to the IRS website.