For business owners in New York (NY) and California (CA), there's an important update regarding the Federal Unemployment Tax Act (FUTA) that demands attention. This article breaks down why these two states must pay double the amount for FUTA tax again this year.
Why Are NY and CA Penalized Exclusively?
Last year, many states, including NY and CA, struggled to meet federal unemployment funding requirements. They had borrowed money from the federal government and hadn't paid it back in time. While other states managed to settle their debts, NY and CA did not, leading to higher FUTA taxes for businesses again in NY and CA.
How Much Extra Will This Cost Me?
Businesses in NY and CA are looking at an additional cost of up to $42 per employee. This extra charge is because these states didn't sufficiently fund their unemployment reserves, and now businesses have to cover the shortfall.
For example, if you have five employees, you're looking at an extra 5 x $42 = $210. However, if you had 100 employees work for you this year, it’s going to cost you $4,200.
FUTA tax is calculated on the first $7,000 of each employee's annual wages so if an employee earned less than $7000 this year, your FUTA tax will be less.
What Exactly is FUTA Tax?
FUTA stands for the Federal Unemployment Tax Act. It's a tax that employers pay to help fund state unemployment agencies. This money is used to support workers who have lost their jobs. It's a key part of the unemployment insurance system in the U.S.
Does this Happen Every Single Year?
FUTA taxes are a yearly responsibility for businesses, but having to pay double the usual amount for NY and CA businesses isn't always an annual event. It's a result of NY and CA not meeting specific federal requirements.
However, the bad news happened again this year, so it’s important for NY and CA business owners to budget this extra $42 per employee payroll tax expense at the end of this year.
For those running businesses in New York and California, you’re probably already used to paying more for everything. Now, you can add “double FUTA tax” to your list again for this year.
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