According to the California Employment Development Department, California will be a FUTA tax credit reduction state in 2011.

Standard Credit Rates Is 5.4% for 2011

Generally, employers who pay their state unemployment tax by the due date for filing Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, receive a credit 5.4% against their Federal Unemployment Tax Act (FUTA) tax. This credit is claimed on Form 940.

FUTA Wage Base Is $7,000 for 2011

The FUTA wage base is $7,000 for 2011.

Employers in Certain States Are Subject To Credit Reduction

Federal law provides for a reduction in the FUTA tax credit when a state has outstanding federal loans for two years. The credit reduction is calculated on Schedule A of Form 940.

California Is Subject To Credit Reduction for First Time

Since California was not a credit reduction state in 2010, the credit reduction rate will be 0.3% for 2011. California employers will receive a reduced credit of 5.1% for 2011. For the first six months of 2011, the FUTA tax rate was 6.2% and for the last six months of 2011, the FUTA tax rate has been 6.0%. Therefore, California employers will pay an effective rate of 1.1% for the first six months of 2011 and 0.9% for the last six months of 2011. The credit reduction will continue to increase by 0.3 percentage points each year until the loan is paid, e.g., 0.6% in 2012, 0.9% in 2013, etc.

Vision Payroll Will Calculate the Credit Reduction for All California Clients

Contact Vision Payroll if you have any further questions on the California credit reduction.