FUTA Tentative Credit Reduction States for Tax Year 2012

FUTA Tentative Credit Reduction States for Tax Year 2012

By Denise Gracia, ADP

  • Employers are required to file the Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) on January 31st of each year. The revenue from the Federal Unemployment Tax Act (FUTA) is used, in part, to provide loans to states with insolvent unemployment trust funds.

  • In addition to State Unemployment Insurance (SUI) taxes, employers are required to pay Federal Unemployment Tax Act (FUTA) taxes of 6.0% on the first $7,000 of wages paid to each employee during the tax year.

  • Employers who pay their SUI taxes timely are allowed a Tentative Credit of up to 5.4% against their Federal tax liability, resulting in a minimum FUTA rate of 0.6%.

  • This Tentative Credit can be reduced by the Internal Revenue Service (IRS) to recover funds from state unemployment agencies whose loans remain outstanding for over two years.

  • Due to the recent economic downturn, many state unemployment insurance agencies have had to borrow funds from the Federal government and are unable to make timely payments.

  • For tax year 2012, the Internal Revenue Service (IRS) has provided the final list of states and their credit reduction rates, as listed below:


Arizona 0.3%

Florida 0.6% 

Nevada 0.6% 

Rhode Island 0.6% 

Arkansas 0.6% 

Georgia 0.6% 

New Jersey 0.6% 

Vermont 0.3% 

California 0.6% 

Indiana 0.9% 

New York 0.6% 

Virgin Islands 1.5% 

Connecticut 0.6% 

Kentucky 0.6% 

North Carolina 0.6% 

Wisconsin 0.6% 

Delaware 0.3% 

Missouri 0.6% 

Ohio 0.6% 



  • Note: Unless a state pays off the loan or takes other actions specified by federal law, their FUTA Credit Reduction will increase annually by .3% (.003).

  • We have initiated a FUTA project and are conducting weekly meetings with designated region partners to ensure that all FUTA reports and processes are being reviewed and managed as appropriate. We are also working on enhancements to improve the existing FUTA reports.

  • To inform our clients of their tax obligations related to these FUTA credit reduction states, a client letter is being prepared in close collaboration with our region partners and will be sent to clients who are doing business in these states.

  • Please continue to review the appropriate reports in preparation for the FUTA process.

 To view the original PDF from ADP, click here.