State FUTA Credit Reductions and Minimum Wage Increases

The last 60 days of each year present two predictable payroll changes: FUTA credit reductions and minimum wage increases. Recent announcements have clarified what those changes will be.

FUTA Credit Reduction States

Here is a summary of the 18 states (plus the U.S. Virgin Islands) with a credit reduction because they failed to repay outstanding federal loans by the November 10, 2012, deadline: 

• First year, employers in these three states will pay an increase of .3% in FUTA tax (maximum $21 per employee):  Arizona, Delaware and Vermont.
• Second year, employers in these 14 states will pay an increase of .6% in FUTA tax (maximum $42 per employee):

Arkansas	California	Connecticut	Florida
Georgia	Kentucky	Missouri	Nevada
New Jersey	New York	North Carolina	Ohio
Rhode Island	Wisconsin

• Third year, employers in Indiana will pay an increase of .9% in FUTA tax (maximum $63 per employee)
• The Virgin Islands extra credit reduction is 1.5%.
• These states dropped off the list for 2012 after being on the list for 2011:       

Illinois	Michigan	Minnesota	Pennsylvania
South Carolina	Virginia

Employers pay FUTA taxes at 6% on the first $7,000 of covered wages for each employee in a calendar year. This tax may be offset by credits of up to 5.4% (i.e., the “normal credit”) against FUTA tax liability for amounts paid to a state unemployment fund. A .3% credit would reduce that credit to 5.1%, thus making the net FUTA rate .9% (i.e., 6.0% – 5.1%). Affected employers must pay the additional taxes by January 31, 2013.

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