2022 FUTA Credit Reduction

The spending binge on unemployment benefits for those that stayed home during and after the COVID pandemic has come to an end, but somebody needs to pick up the bill. Part of that bill will be paid by small business employers, in the form of a FUTA Credit Reduction.

Uh, what?! Let me explain.

Federal Unemployment Tax Act

Sounds complicated, but in general, the Federal Government charges a 6% Federal Unemployment Tax (FUTA) on wages up to $7000 annually. A credit is then applied in the amount of 5.4%, making the effective rate .6% on wages up to $7000.

If states overspend on unemployment, as California did in 2020 and 2021, the Federal Government lends that state enough funds to cover the excess unemployment. If the state doesn't pay back those benefits by November 10, the Feds come calling to get their money back, and they do this by reducing the 5.4% credit to the states. Each year the loan continues to be unpaid, the credit reduction increases by 0.3% until it is fully paid back.

Despite the massive surplus the State of California has in the bank, they are relying on small business employers to pay back the money they paid out in unemployment benefits.

Infinium will begin preparing for this process and will provide further details in the coming weeks. We just wanted to give you a heads-up so you can prepare your budget.

Below is a quick way to estimate your additional tax, but we will provide more info shortly.

Despite the massive surplus the State of California has in the bank, they are relying on small business employers to pay back the money they paid out in unemployment benefits.

Infinium will begin preparing for this process and will provide further details in the coming weeks. We just wanted to give you a heads-up so you can prepare your budget.

Below is a quick way to estimate your additional tax, but we will provide more info shortly.