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Employers in Credit Reduction States Must Adjust Their Unemployment Tax Liability on Their 2011 Form 940

NOTE: This headliner is current through the publication date. Since changes may have occurred, no guarantees are made concerning the technical accuracy after the publication date.

Headliner Volume 317
December 7, 2011

Employers in “credit reduction” states must remember to calculate a credit reduction as an adjustment to their FUTA tax on their 2011 Form 940 (PDF), Employer's Annual Federal Unemployment (FUTA) Tax Return. “Credit reduction” states are states that did not repay the money they borrowed from the federal government to pay unemployment benefits.

The Department of Labor determines the credit reduction states for each year. For 2011, employers in these states must reduce their .054 credit on their Form 940 by the following amounts:

States Reduction Rate
Arkansas .003
California .003
Connecticut .003
Florida .003
Georgia .003
Illinois .003
Indiana .006
Kentucky .003
Michigan .009
Minnesota .003
Missouri .003
Nevada .003
New Jersey .003
New York .003
North Carolina .003
Ohio .003
Pennsylvania .003
Rhode Island .003
Virginia .003
Virgin Islands .003
Wisconsin .003

Employers in these states must use the Schedule A (Form 940) (PDF) to compute the credit reduction and attach the Schedule A to their Form 940. More information on the credit reduction, including an example on how to calculate the credit reduction is on the Schedule A (Form 940) and also in the Instructions for Form 940 (PDF).

As a result, if employers pay wages that are subject to the unemployment tax laws of a credit reduction state, the employers must pay additional FUTA tax. Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit.

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Page Last Reviewed or Updated: 26-Apr-2013