FUTA Credit Reductions

The Federal Unemployment Insurance Tax Act (FUTA), Sections 3302(c)(2) and 3302(d)(3), provides that employers in states that have an outstanding balance of advances under Title XII of the Social Security Act at the beginning of January 1 of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax, if all advances are not repaid before November 10 of the taxable year. These credit reductions are made from the regular credit reduction of 5.4%. So, while, employers in states without a further credit reduction will have a FUTA tax rate of .6% (on the first $7,000 of wages paid) for the year, employers in states with a further credit reduction due to an outstanding balance of advances will incur a FUTA tax rate of .6% + FUTA credit reduction.

In addition, following the third and fifth January 1st with an outstanding Federal advance, employers in those states are potentially subject to additional credit reductions as outlined in FUTA Sections 3302(c)(2).

Tables are provided for the actual credit reductions that have been applied historically, and, because the final credit reduction for any given year is not determined until Nov. 10 of that year, a list of potential credit reductions is provided for the current year when applicable.

If you have any questions or desire further information, please contact Kevin Stapleton (Stapleton.Kevin@dol.gov) or Dyana Cornell (Cornell.Dyana@dol.gov) at the Division of Fiscal and Actuarial Services.