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 $63 more per employee for FUTA tax again this year, bringing the total FUTA tax to $105 per employee.
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 in these states.
How Much Extra Will This Cost Me?
Businesses in NY and CA are facing an additional cost of $63 per employee. Normally, FUTA tax is $42 per employee. With the increase, the total FUTA tax is now $105 per employee.
For example:
- If you have 5 employees, you're looking at an extra 5 x $63 = $315.
- If you had 100 employees work for you this year, it’s going to cost you $6,300.
FUTA tax is calculated on the first $7,000 of each employee's annual wages. So, if an employee earned less than $7,000 this year, your FUTA tax for that employee will be lower.
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 this additional $63 per employee isn’t always an annual event. It's a result of NY and CA not meeting specific federal requirements to repay their unemployment insurance loans.
Unfortunately, this penalty has been applied again this year, so it’s important for NY and CA business owners to budget this extra payroll tax expense as part of their year-end planning.
Wrapping Up
For those running businesses in New York and California, you’re probably already used to paying more for everything. Now, you can add “$105 FUTA tax per employee” to your list for this year. Be sure to plan ahead to account for this increased cost and stay compliant.
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