According to the U.S. Department of Labor (DOL), California, New York, and the U.S. Virgin Islands could not pay back their federal loans by the November 10, 2023, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2023. [DOL, Final 2023 Federal Unemployment Tax Act (FUTA) Credit Reductions, rev. 11-13-23].
For 2023, California and New York are subject to a credit reduction of 0.6%, and the Virgin Islands is subject to a credit reduction of 3.9%. California, New York, and the Virgin Islands were also subject to a credit reduction for 2022.
Earlier this year, Connecticut and Illinois were listed as potential FUTA credit reduction states, but both states paid off their outstanding loans by the November 10, 2023, deadline.
Tax Due in January
The additional FUTA tax must be deposited by the due date of the 2023 federal Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due January 31, 2024. The 2023 Schedule A (Form 940) will contain the official list of credit reduction states/territories, and the credit reduction total from Schedule A is reported on Form 940. Both forms will be available from the IRS when they are finalized.
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Lia Coniglio, Esq., is Managing Editor of PayState Update and Senior Manager of State Payroll Information Resources for PayrollOrg.