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Important Payroll Tax Announcement: 2017 FUTA Tax Credit Reduction

The 2017 FUTA (Federal Unemployment Tax Act) Tax Credit has been reduced for California and the Virgin Islands resulting in higher FUTA Tax Rates for employers in those states.

The impact of this federal action on employers in the affected states is that they will owe additional FUTA taxes for the 2017 tax year.

State Credit Reduction Amount

  • California 2.1%
  • Virgin Islands: 2.1%


Why Did This happen?

Historically, a percentage of FUTA was waived (and called a FUTA Tax Credit) for states with a good credit rating with the Federal Government. That tax credit has been reduced for states that have not maintained their credit rating meaning a higher FUTA tax percentage has been put into place for these states. During the economic recession, many states were unable to maintain their good credit rating and subsequently lost a portion of their FUTA credit.

Which States Are Affected for 2017?

A listing of the states affected for 2017 and the corresponding credit reduction rate has been placed above.

Will My Employees Owe Additional Taxes?

As this is an employer only tax, none of your employees will be affected by this change.

If I Have Employees in the States Listed, How Much Will I Owe?

For example, the first $7,000 in wages is subject to unemployment. Multiply the subject wages by the FUTA credit rate, which gives you the additional amount owed. In this example, $7,000 * 2.1% = $147 (per employee in that state). The tax owed is based on of taxable wages for that specific state’s unemployment.

When Does the IRS Publish the FUTA Tax Credit Reductions?

The IRS releases this information in mid-to-late November each year.

Where Can I Find More Information?

For additional information about the FUTA Tax Credit Reduction, please visit the IRS FAQ page hereLearn more about what FUTA tax credits mean for your organization

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