FUTA Credit Reduction States 2024: What Employers in California, New York and the Virgin Islands Need to Know

As 2024 comes to a close, employers in certain states should prepare for an increase in their Federal Unemployment Tax Act (FUTA) tax liabilities. This year, California, New York, and the U.S. Virgin Islands are designated as FUTA credit reduction states.

If you’re an employer in one of these locations, here’s what it means and how SwiftChecks helps you manage these changes seamlessly:

What Is a FUTA Credit Reduction? FUTA is a payroll tax paid by employers to fund unemployment benefits. The standard FUTA tax rate is 6% on the first $7,000 of each employee’s wages annually. Employers typically qualify for a 5.4% credit, lowering their effective FUTA tax rate to 0.6%. However, when a state or territory borrows from the federal government to cover unemployment benefits and fails to repay the loan in time, employers in that location lose part of the 5.4% credit. This increases the FUTA tax rate, which is referred to as a credit reduction.

For 2024, the following states and territories are subject to a FUTA credit reduction:

• California: 0.9% reduction (effective FUTA rate: 1.5%)
• New York: 0.9% reduction (effective FUTA rate: 1.5%)
• U.S. Virgin Islands: 4.2% reduction (effective FUTA rate: 4.8%)

Employers in California and New York will pay an additional $63 per employee (on the first $7,000 of wages), while employers in the Virgin Islands will pay an additional $294 per employee.

How SwiftChecks Simplifies the Process: Handling FUTA credit reductions can be complex, but SwiftChecks ensures you stay compliant:

• Automatic Calculations: Our system automatically accounts for the additional FUTA tax owed by employers in California, New York, and the Virgin Islands.
• Electronic Payments: The increased FUTA tax is electronically paid when we file Form 940 on your behalf.
• Accurate Year-End Filing: We ensure your year-end payroll filings, including Form 940, are accurate and submitted on time.

Why Is This Important? Failing to account for FUTA credit reductions can result in underpayment penalties and additional costs for employers. By staying informed and working with a reliable payroll provider, you can avoid unnecessary stress and focus on running your business.

We’re Here to Help: If you’re an employer in California, New York, or the U.S. Virgin Islands, SwiftChecks has you covered. Our system takes care of the calculations, filings, and payments, ensuring you stay compliant with federal and state regulations.

Have questions about FUTA credit reductions or other payroll tax matters? Reach out to us at [email protected] or schedule an online demo of our payroll system here.

Sources: U.S Department of Labor - oui.doleta.gov/unemploy/futa_credit.asp