Along with New York and the U.S. Virgin Islands, California is facing a reduction in Federal Unemployment Tax Act (FUTA) credit for 2023, which means employers in California pay higher FUTA taxes retroactively in January 2024 for wages paid in 2023 due to the state’s outstanding federal loans. Many states, including California, experienced a FUTA Credit Reduction of 0.3% for 2022, and will be subject to an additional 0.3% credit reduction for 2023. What Is the Federal Unemployment Tax Act (FUTA)? The Federal Unemployment Tax Act (FUTA), passed in 1939, established a federal payroll tax to help fund and insure state unemployment benefits across the United States. This base federal payroll tax is 6% on the first $7,000 each employee makes in a year, which the employer is responsible for paying. Employers in most states are provided a Credit of 5.4% to this 6% FUTA rate. The results in a rate of 0.6%. State governments are also responsible for collecting unemployment taxes from

FUTA CREDIT REDUCTION STATES RELEASED FOR 2023 Employers in California to Pay Higher FUTA Tax Rates Retroactively Employers in California, Connecticut, Illinois, New York, and the U.S. Virgin Islands will pay higher Federal Unemployment Act (FUTA) taxes in January 2023 for wages paid in 2022 due to unpaid federal loans. The Department of Labor & IRS recently announced that the Credit for FUTA taxes will be reduced for employers in these states. This results in an adjusted higher net tax rate. This increase will be based on FUTA taxable wages paid in the affected jurisdictions during 2022. This adjusted higher net rate must be calculated retroactively for 2022 and paid in January of 2023. California Employers will pay an additional 0.3% on FUTA taxable wages (first $7,000 of taxable wages times 0.3%, or up to $21 per employee) when the 2022 Form 940 is filed. According to IRS regulations, any increased FUTA tax liability due to a credit reduction is considered incurre