Understanding the 2015 FUTA Credit Reduction

Understanding The FUTA Credit Reduction

At the end of November 2015, the U.S. Department of Labor notified the IRS which state employers were not eligible to receive the full available credit towards their FUTA tax rate due to the states’ outstanding Federal loan balances.

As a result, employers in these states have an additional FUTA tax amount on their 2015 year end form 940. This is not a correction to previous quarters; rather, it is a modification to the year-end tax reconciliation. This is not paid by employee wage deductions but rather paid by employer only.

For payroll clients, OmegaComp HR will calculate the appropriate tax that is needed, collect the additional amount on your final scheduled payroll of 2015, and report the tax on your 2015 Form 940. The amount should not exceed $105 per employee and may fluctuate lower depending on whether the employee has received less than $7,000 as their total wages for 2015.

If you do not currently use our payroll services, please contact your payroll provider for assistance.

As with any tax related item, we recommend you consult your tax adviser with specific questions related to how the changes may affect your tax situation.


The Final 2015 FUTA Credit Reduction List
State Credit Reduction
California 1.5%
Connecticut 2.1%
Ohio 1.5%
Virgin Islands 1.5%