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Employers in 2015 FUTA credit reduction states must adjust their unemployment tax liability on their Form 940

NOTE: This headliner is current through the publication date. Since changes could occur, we make no guarantees concerning the technical accuracy after the publication date.

Headliner Volume 353
December 22, 2015

Employers in FUTA credit reduction states must calculate a credit reduction as an adjustment to their FUTA tax on their 2015 Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return.

Credit reduction states are states that did not repay money they borrowed from the federal government to pay unemployment benefits. The reduction in the usual credit against the full FUTA tax rate means that employers located in these credit reduction states who are paying wages subject to state unemployment tax in those states will owe a greater amount of tax.

The Department of Labor determines the credit reduction states for each year. For 2015, employers in these states must reduce their credit on Form 940 by the following amounts:

State 2015 Credit Reduction
California 1.5%
Connecticut 2.1%
Ohio 1.5%
Virgin Islands 1.5%

Employers in these states must use the Schedule A (Form 940) 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 located on the Schedule A (Form 940) and also in the Instructions for Form 940.

Employers must include liabilities owed for credit reduction in calculating their fourth quarter deposit and should plan accordingly.

Additional information about the credit reduction, including how to calculate and report the credit reduction, is on the FUTA Credit Reduction page.

Page Last Reviewed or Updated: 19-Apr-2016