The Federal Unemployment Insurance Tax Act (FUTA), Sections 3302(c)(2) and 3302(d)(3), provides that employers in states that have an outstanding balance of advances under Title XII of the Social Security Act at the beginning of January 1 of two or more consecutive years are subject to a reduction in credits otherwise available against the FUTA tax, if all advances are not repaid before November 10 of the taxable year. These credit reductions are made from the regular credit reduction of 5.4%. So, while, employers in states without a further credit reduction will have a FUTA tax rate of .6% (on the first $7,000 of wages paid) for the year, employers in states with a further credit reduction due to an outstanding balance of advances will incur a FUTA tax rate of .6% + FUTA credit reduction.
In addition, following the third and fifth January 1st with an outstanding Federal advance, employers in those states are potentially subject to additional credit reductions as outlined in FUTA Sections 3302(c)(2).
Tables are provided for the actual credit reductions that have been applied historically, and, because the final credit reduction for any given year is not determined until November 10th of that year, a list of potential credit reductions is provided for the current year when applicable.
The states listed below had Title XII advance balances on January 1, 2017 and are potentially subject to a reduction in FUTA credit on their IRS Form 940 for 2017, if the outstanding advance is not repaid by November 10, 2017:
| State1 |
2017 Potential Credit Reduction Due to Outstanding Advance2 |
Preliminary Estimate 2017 Potential "2.7 add-on" 3 |
Preliminary Estimate 2017 Estimated "BCR add-on"4 |
Preliminary Estimate 2017 Potential Total Credit Reduction 5 |
| California |
2.1% |
0.0% |
0.0% |
2.1`% |
| Virgin Islands |
2.1% |
0.0% |
1.1% |
3.2% |
(1) These states have passed at least two consecutive January 1's with an outstanding Federal advance and are therefore subject to a FUTA credit reduction.
(2) For each consecutive January 1 a state passes with an outstanding advance, following the second one, employers in the state are subject to an additional 0.3% reduction in their FUTA credit.
(3) Following their third consecutive January 1 with an outstanding advance states are subject to an additional FUTA credit reduction called the 2.7 add-on. A description of this add-on is in FUTA 3302(c)(2)(B). This value was preliminarily estimated based on extrapolated wages for the fourth quarter of 2016.
(4) These states are also potentially subject to the Benefit Cost Rate (BCR) additional credit reduction formula for having passed five consecutive January 1's with an outstanding Federal advance-FUTA section 3302 (c) (2). This value was preliminarily estimated based on extrapolated wages for the fourth quarter of 2016.
(5) The potential FUTA credit reduction for 2017 is calculated by adding the credit reduction due to having an outstanding advance plus the reduction from the 2.7% add-on or the BCR add-on, which can be waived and replaced by the 2.7 add-on, FUTA section 3302(c)(2)(C).
For the current list of potential 2017 FUTA Credit Reductions please click here.