Posted on December 1, 2010

FUTA Credit Reduction: Michigan, South Carolina and Indiana

The IRS announced a reduction in 2010 FUTA (Federal Unemployment Tax Act) credit for Michigan, South Carolina and Indiana, resulting from unpaid federal loans. This reduction means an overall increase in the FUTA taxes for these states.

Employers are required to pay a flat rate of 6.2% on the first $7,000 of each employee’s annual wages; however, a credit of 5.4% is received for paying state unemployment on time. The Social Security Act requires a reduction in the FUTA tax credit when a state has outstanding federal loans for two consecutive Januarys. The reduction in the FUTA tax credit is 0.3% for the first year and an additional 0.3% for each succeeding year until the loan is repaid.

South Carolina: An additional $21 per employee ($7,000 x 0.3% = $21) this first year.
Indiana: An additional $21 per employee ($7,000 x 0.3% = $21) this first year.
Michigan: An additional $42 per employee ($7,000 x 0.6% = $42) this second year.

The FUTA credit reduction will become effective retroactive to January 1, 2010 and will be due on federal IRS Form 940 by January 31, 2011.

Click here to read more about how Paycor is handling the additional tax payment.