Today, I received a phone call from a local manufacturer in Escondido who has been able to double his business in the last two years. Kudos, right? Here is an entrepreneur wanting to expand but with expansion comes an increase in expenses. And one of those expenses hit this week called FUTA.
As employers, we pay a 6.2% FUTA per employee on the first $7,000 of wages for a total of $434.00, a tax which is paid throughout the year and recorded on the quarterly 940 filings.
So why the hefty FUTA bill that is due by January 31st?
Each year that California is in debt to the Federal Unemployment Trust Account (FUTA), the tax credit will be reduced by .3% until this debt is eliminated. And a reduction in tax credit means higher taxes. This debt has been rolling over since 2011, increasing the UI tax by an additional $21 per employee per year. Here is the math:
Regular FUTA tax After Offset Credit………… 0.6
Percent Increase for 2016 (.3% Per Year)……. 1.8
Total FUTA Tax % per employee……………….. 2.4
Total FUTA Tax $ increase ……………………….. $168 ($7000 x .024)
If you are a business with five employees, the increased tax may not be a huge hit to your bottom line. But, as with the person I spoke to today, multiply $168 x 20 employees and the bill is $3,360.
It is not expected that the debt will be relieved by November of 2017, thus the anticipated FUTA due January 2018 will be an additional $189 per employee and will go directly to paying down the states debt to the fund.