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Federal Unemployment Tax Act (FUTA) Credit Reduction States

Learn about FUTA credit reduction states and how it is reported for 2020.

Here is a reference for FUTA credit reduction states and rates for 2020

Need information on how to qualify for the full FUTA credit? See Qualify for the Federal Unemployment Tax Act (FUTA) credit.

What is a Credit Reduction State?

A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame. The FUTA credit rate for employers in that state will be reduced until the loan is repaid, requiring employers to pay additional unemployment tax when filing Form 940 and Schedule A for 2020, which will be due by January 31, 2021.

What is the 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%).

What is the FUTA credit reduction rate?

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 has not repaid its loan in full.

For more details on credit reductions, tax affects and reporting, see IRS FUTA Credit Reduction.

Credit Reduction States for 2020

For 2020, Virgin Islands had remaining balances as of November 10, 2020, and therefore subject to a higher rate of 3.0%. There are no other states or territories affected for 2020. Complete details can be seen below.

Note: Intuit Payroll is committed to keeping you up-to-date with your payroll service - making sure you have the latest information. We encourage you to revisit this article periodically for any updates.

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