Instruction For Futa Tax Credit Reduction
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1State of Michigan
Department of Licensing and
Regulatory Affairs
Reminder: 2010 FUTA Tax Credit Reduction
UNEMPLOYMENT
INSURANCE
Employers file Form IRS 940, Employer’s Annual Federal Unemployment (FUTA)
AGENCY
st
Tax Return, on January 31
of each year. The revenue from these taxes is used, in
R
S
,
Governor
ICK
NYDER
part, to provide loans to states with insolvent unemployment trust funds. Michigan
State of Michigan
has been borrowing from the federal government to pay unemployment benefits
S
H. H
,
Director
TEVEN
ILFINGER
Department of Licensing and
for the past two years.
Regulatory Affairs
S
A
,
Deputy Director
TEVE
RWOOD
Department of Licensing and
Regulatory Affairs
Federal law provides for a reduction in the FUTA tax credit when a state has
S
A
,
Acting Director
TEVE
RWOOD
outstanding federal loans for two years. The reduction in the FUTA tax credit was
Unemployment Insurance Agency
0.3% for the first year (2009), and will be an additional 0.3% for each succeeding
year until the loan is paid.
This FUTA credit reduction results in a net increase in FUTA taxes and applies to all
Michigan contributing employers except for Indian Tribes, nonprofit organizations,
and governmental entities.
The 2009 FUTA credit reduction was effective January 1, 2009, and was due on
federal IRS Form 940 by January 31, 2010. For calendar year 2010, the FUTA
credit reduction is 0.6% which will become due to the IRS by January 31, 2011
FUTA tax rate….………………............................
6.2%
Minus Credit allowed…….…………...…………… - 5.4%*
Equals Net FUTA tax.……………………………...
0.8%
Add FUTA Credit Reduction in 2nd year……..…. +0.6%
Equals Total FUTA tax….……………..…………..
1.4%
Employers pay FUTA to the IRS on the first $7,000 of each employee’s annual
wages ($7,000 X 0.8% = $56). The FUTA credit reduction results in an additional
$21 per employee ($7,000 X 0.3% = $21) in the first year that loans are
outstanding, and an additional $21 in each succeeding year that loans remain
unpaid.
Due: 01/31/2010
Additional
$77 ($56 + $21)
Effective FUTA rate: 1.1%
$21/employee
Due: 01/31/2011
Year 2 (2010)
Additional
$98 ($77 + $21)
Effective FUTA rate: 1.4%
$21/employee
Due: 01/31/2012
Year 3 (2011)
Additional
$119 ($98 + $21)
Effective FUTA rate: 1.7%
$21/employee
The FUTA credit reduction is used to pay the state’s loan principal. The tax dollars
collected by the federal government as a result of the 0.6% FUTA credit reduction
are applied directly to Michigan’s outstanding loan balance.
*If state unemployment tax is paid timely.
Fa
ct Sheet 13
3
LARA is an equal opportunity employer/program.
Michigan Department of Licensing and Regulatory Affairs
May 2011
Auxiliary aids, services and other reasonable
Unemployment Insurance Agency
accommodations are available upon request to individuals
Authority: UIA Director; Quantity: 1,000
.
Cost: $14 (1.4¢/copy). Paid for with federal funds.
with disabilities
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