Four states have assessed a Federal Unemployment Tax Act (FUTA) credit reduction for employers in 2022. A reduction in the usual credit against the full FUTA tax rate means employers who pay wages subject to unemployment insurance (UI) will owe a higher tax rate.

Affected States

Employers in California, Connecticut, Illinois, and New York are affected by the 2022 FUTA credit reduction. As a result, they will be assessed a FUTA credit reduction of 0.3% on wages paid to employees for work in any of these states. The reduction will cause employers to pay an effective tax rate of 0.9%, or up to $63 for each employee, when applied to the federal unemployment-taxable wage base of $7,000.

Employers in the US Virgin Islands will be assessed a general FUTA credit reduction of 3.6% on wages paid to employees for work in the territory. The reduction will cause employers in the US Virgin Islands to pay an effective federal unemployment tax rate of 4.2%, or up to $294 for each employee, when applied to the federal unemployment-taxable wage base.

Reason for the Credit Reduction

During the pandemic, high unemployment rates caused many states to borrow from the federal unemployment account. States had until November 10, 2022, to repay the tax credit permitted under FUTA. Those states unable to pay the loans within the allowable time frame are being assessed the FUTA credit reduction.

For more information on the FUTA Credit Reduction, please IRS.gov.

This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.