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Sorry California-More Taxes

For the last few years, California has had to pay a supplemental payroll tax called the FUTA Credit reduction. This year in January 2017, we believe we will have to pay it again. We will find out for sure on or around November 11th, but we would bet, we will be ponying up.

These funds will be remitted around January 23, 2017. Unfortunately, we will only be able to provide employers with a 5-6 day heads up once we have these numbers calculated. Please look for an email from Heather or Candace on or around January 17th or 18th, with the amount to be debited from your account.


Employers pay federal unemployment insurance taxes on wages paid to their employees. The FUTA tax rate is normally 0.6% of wages paid up to a limit of $7,000 per employee, or $42 per employee per year.

The full FUTA tax rate is 6.0%, but employers receive an offsetting credit of 5.4% for payment of SUI taxes. This makes the effective FUTA tax rate 0.6 %. However, when SUI funds are depleted, states draw from a designated federal loan account. If such loans are not repaid within two years, part of the 5.4% FUTA tax credit is reduced. This increases the effective FUTA tax rate in the affected states.

When this credit reduction applies, the FUTA tax typically increases by 0.3%, or $21 per employee. This increase is payable in January of the following calendar year with the Internal Revenue Service (IRS) FUTA tax return, Form 940. This credit is further reduced annually by 0.3% until loans are repaid.

And the really bad news, in addition, jurisdictions (California) that have had outstanding FUTA debt for five years are potentially subject to a special Benefit Cost Rate (BCR) Add-on tax. This could increase the FUTA tax by more than the typical 0.3% per year.

Not currently a client? Contact us today at Candace Ebert & Company 831-316-1106.

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