IRS Makes Changes to Unemployment Wage Base

The IRS has just released which states would be subject to credit reduction for unemployment taxes.  California, Connecticut, Illinois, and New York, along with the Virgin Islands, did not pay back their federal loans by the November 10, 2022, deadline and will lose the full Federal Unemployment Tax Act (FUTA) credit for 2022, according to the U.S. Department of Labor.  The credit reduction rate is 0.03 (3.0%) and is reported on. (Schedule A (Form 940).

For those of you unfamiliar with the term credit reduction it is not a reduction in the number of monies owed in each of the impacted states.  Instead, it means for those states the employer is subject to a 3.0% decrease in the credit it normally received on the Federal Unemployment 940 return.  Employers are normally entitled to a 5.4% decrease on the standard 6% rate charged on the federal 940 but those in a credit reduction status can only apply a 5.1% decrease.

The Internal Revenue Service (IRS) states that employers must use Schedule A (Form 940) to calculate the credit reduction when reporting it.

On Schedule A (Form 940), every state has:

• A checkbox (to be checked if an employer-paid state unemployment taxes to that state)
• A box for the FUTA taxable wages the employer paid in that state (to be filled in if the state is a credit reduction state and the employer paid wages subject to UI tax in the state).

Employers who use Schedule A (Form 940) include:

• Employers that paid FUTA taxable wages and UI tax in more than one state
• Employers that paid FUTA taxable wages and UI tax in any credit reduction state, even if the employer is a single-state employer. These employers report the FUTA taxable wages and multiply by the credit reduction rate (0.3%, 0.6%, 0.9%, etc.) to calculate the total credit reduction, which the employer carries forward to Form 940.

If an employer paid Unemployment Insurance (UI) taxes to more than one state, it must check all those states on Schedule A (Form 940), regardless of whether the states are credit reduction states or not.

Additionally, for states that are credit reduction states, employers must enter the FUTA taxable wages they paid in that state, even if they paid wages in only one state. However, FUTA taxable wages that are excluded from UI are not subject to credit reduction. For more information, please refer to the Instructions for Schedule A (Form 940) PDF, available here.

State 2023 Wage Base

• Alabama $8,000
• Alaska $46,800
• Arizona $8,000
• Arkansas $10,000
• California $7,000
• Colorado $20,400
• Connecticut $15,000
• Delaware $14,500
• District of Columbia $9,000
• Florida $7,000
• Georgia $9,500
• Hawaii $55,800
• Idaho $50,000
• Illinois $12,960
• Indiana $9,500
• Iowa $36,100
• Kansas $14,000
• Kentucky $10,800
• Louisiana $7,700
• Maine $12,000
• Maryland $8,500
• Massachusetts $15,000
• Michigan $9,500
• Minnesota $41,000
• Mississippi $14,000
• Missouri $10,500
• Montana $40,500
• Nebraska $9,000
• Nevada $40,100
• New Hampshire $14,000
• New Jersey $41,100
• New Mexico $30,100
• New York $12,300
• North Carolina $30,000
• North Dakota $38,400
• Ohio $9,000
• Oklahoma $25,700
• Oregon $51,600
• Pennsylvania $10,000
• Rhode Island $24,600
• South Carolina $14,000
• South Dakota $15,000
• Tennessee $7,000
• Texas $9,000
• Utah $44,300
• Vermont $13,500
• Virginia $8,000
• Washington $67,600
• West Virginia $9,000
• Wisconsin $14,000
• Wyoming $29,100