Heads up! Businesses in NYS, CA, CT & IL can expect a tax bill in the mail

Businesses located in New York, California, Connecticut, and Illinois should expect an additional tax bill associated with payroll and unemployment insurance.

Here is some background:

The Federal government charges 6% on the first $7000 of wages of all employees for unemployment but provides a credit reduction of 5.4%, which makes the effective FUTA tax rate .06%.

During Covid, there were so many Unemployment claims by taxpayers that some states had to take loans from the federal government to cover the claims.

When a state takes a loan from the federal government to pay for Unemployment claims in their state and does not repay the total amount by a certain date, the credit reduction of 5.4% is reduced by .03%, to 5.1%, causing the FUTA taxes to net at .9%.

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The states of New York, California, Connecticut, and Illinois did not completely pay back the loans with the federal government and are therefore subject to this credit reduction.

The additional tax is then passed on to each business to pay the additional portion of the Unemployment tax, which comes in the form of a bill around now.

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

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

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