Why Did My FUTA Liability Go Up at the End of the Year?

Just when you thought you were done paying FUTA tax on your employees for the year your accountant tells you that you need to pay a few more dollars for all of your employees. Why did this happen?

FUTA is paid by you, as an employer, at a rate of 6.0% on the first $7000 each of your employees earns.  The federal government gives you a 5.4% credit on this tax for SUTA that is paid on time for a net tax amount of 0.6%.  A large majority of payroll processing software packages, services, and accountants assume that you will get this credit and that you will at most owe $42 per employee.

However, if your state had to borrow money from the federal government in order to pay unemployment benefits and was not able to repay the loan by the due date, the federal government reduces the amount of credit you can claim.

When the IRS is finalizing the 940 at the end of the year, they make a note of the states that have an outstanding unemployment loan balance and for each year a state has not met this obligation they reduce the credit that can be taken by employers in that state by 0.3%.  As a result, your liability goes up at the end of the year because your state did not pay off its obligation before it was due.  If the state had paid off its obligation then you would once again get the full 5.4% credit.

Advanced Micro Solutions’ 1099-etc offers a complete software solution for small business payroll, tax professionals, as well as payroll processing companies to help keep track of both your SUTA and FUTA liabilities to make sure you are compliant.

We provide a free DEMO so that you can make sure that our software is a fit for your needs.  Support is provided free of charge on Monday – Friday from 8 AM – 6 PM central time via email, fax, phone, and chat.  We also offer extended hours in January and April, including Saturdays.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.