Learn about FUTA credit reduction states and how it's reported for 2023.
If you want to know how FUTA Credit Reduction impacts your state, here’s a reference of 2023 FUTA credit reduction states and rates.
Credit Reduction States and Rates for 2023
The reduction schedule is 0.3% for the first year the state is a credit reduction state. Another 0.3% for the second year, and an additional 0.3% for each year thereafter that the state hasn't repaid its loan in full.
For 2023, employers subject to FUTA in California, and New York will be assessed a general FUTA credit reduction additional amount of 0.6% on wages paid to employees. The US Virgin Islands will be assessed a general FUTA credit reduction additional amount of 3.9% on wages paid to employees.
|State||Credit Reduction Rate||FUTA (0.6%) + Credit Reduction|
|US Virgin Islands||3.9%||4.5%|
Complete details can be seen below:
- IRS FUTA Credit Reduction
- DOLETA Workforce Security: List of 2023 FUTA Credit Reduction States
- DOLETA Workforce Security: Historical FUTA Credit Reduction States
How QuickBooks calculates FUTA Credit Reduction
|Note: Not sure which payroll service you have? Here's how to find your payroll service.|
What is a Credit Reduction State?
If your state has taken loans from the federal government and hasn't paid within the allowable time frame, your state will be part of the Credit Reduction State.
Employers from these states are required to pay additional unemployment tax when filing Form 940 and Schedule A. For 2023, Form 940 is due on January 31, 2024.
What is the standard FUTA tax credit rate?
The standard FUTA tax rate is 6.0% on the first $7,000 of wages per employee each year. Often, employers may receive a credit of 5.4% when they file their Form 940 (PDF), to result in a net FUTA tax rate of 0.6% (6.0% - 5.4% = 0.6%).