Businesses located in New York and California to expect tax bill associated with payroll and unemployment insurance.

Businesses located in New York and California can expect an additional tax bill associated with payroll and unemployment insurance.

The background:

The federal government charges 6% on the first $7,000 of all employees' wages for unemployment but provides a credit reduction of 5.4%, which makes the effective FUTA tax rate .06%.

During COVID-19, taxpayers filed many unemployment claims, and some states had to take loans from the federal government to cover them.

When states, like New York and California, don’t repay the complete loan, the credit reduction of 5.4% is reduced by .03% each year and this year the credit reduction is reduced to 4.5%, causing the FUTA taxes to be an effective 1.5%.

The additional tax is then passed on to each business to pay the additional portion of the Unemployment tax, which arrives in the form of a bill around now and is around $63 per employee.

So, don’t be surprised if your business gets an additional charge from your payroll company in the next couple of weeks!

Have a question about this or another tax-related matter? Feel free to reach out!

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