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CA & NY Are FUTA Credit Reduction States for 2023

Due to outstanding federal unemployment loans, CA and NY are subject to FUTA Credit Reduction for 2023. This means New York and California businesses will be assessed additional FUTA taxes on the Form 940 payment and filing for 2023.

What is a Credit Reduction State?

Some states take loans from the Federal Unemployment Trust Fund if they lack the funds to pay unemployment insurance benefits for residents of their states. If a state has outstanding loan balances for two consecutive years, the FUTA credit rate for employers in that state will be reduced until the loan is repaid. This results in employers owing additional unemployment tax.

You can get more information about the increased taxes and determine the rate increase for your state in our FUTA help article.

What do I need to do?

There is no action required in QuickBooks for New York and California businesses. When the FUTA tax payment is created for 2-23, Intuit will automatically calculate the additional tax amount due. This newsletter is just a notification to help our clients prepare for the additional tax liability due.

To estimate the additional taxes owed, calculate the total 2023 wages paid for each employee in a credit reduction state, up to the maximum of $7,000. Multiply this by the percentage indicated for your state.

To review a report with your 2023 FUTA Wages:

  1. Login to payroll

  2. Click Reports

  3. Under Payroll Reports click Tax & Wage Summary Report

  4. Set the date range to January 1, 2023, through December 31, 2023

  5. View your Total 940 FUTA wages from the Taxable Wages column of the report

Businesses with employees in California and New York will need to calculate the FUTA wages for employees in each credit reduction state. We hope this newsletter helps your business prepare for the additional tax liability due in January for Federal Unemployment Tax.



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