Federal Unemployment Tax Act (FUTA)
FUTA Information for Wages Employers Paid in 2018
California employers fund regular Unemployment Insurance (UI) benefits through contributions to the state’s UI Trust Fund on behalf of each employee. They also pay separate FUTA taxes to the federal government to help pay for the administration of the UI program, UI loans to insolvent states, and federal extension benefits. Any additional employer FUTA contributions are used to help repay any outstanding federal UI loan the state may have.
The demand for UI benefits was unprecedented during the last recession and California’s UI Trust Fund went insolvent in 2009. The state then began relying on a continuing federal loan to help cover the cost of regular unemployment benefits to jobless workers. Because the federal loan was needed for more than two straight years, California employers saw an increase in their FUTA taxes from 2011 through 2017.
Tax Changes and Information
The state’s UI Trust Fund regained solvency in April 2018 and has maintained a positive balance through November 10, 2018, therefore no additional FUTA tax credit reduction will occur in 2019 for wages paid to their workers in 2018. That means the increase in FUTA taxes over the last several years will now end. Current federal law provides employers with a 5.4 percent FUTA tax credit. That is what employers were granted prior to the increase in 2011, and will again be in place for wages paid in 2018.
The Internal Revenue Service (IRS) uses the FUTA recertification process to make sure the total taxable wages you claimed on the Employer’s Annual Federal Unemployment (FUTA) Tax Return (Form 940) or the federal Household Employment Taxes (Form 1040, Schedule H) were paid to the state. You must meet both the state and federal payroll tax requirements.
To report total taxable UI wages and pay any federal unemployment taxes, you must file reports and pay UI taxes with the EDD, and file a Form 940 with the IRS. Generally, you can take a federal credit against your FUTA tax for the UI taxes you paid to California.
On an annual basis, the EDD and the IRS compare the amounts you reported on your IRS Form 940 to the Total Subject Wages (Line C) and UI Taxable Wages (Line D2) on your EDD Quarterly Contribution Return and Report of Wages (DE 9). If the amounts are not the same, you have an out-of-balance condition. If not corrected, the EDD or the IRS may issue an assessment.
An out-of-balance condition can happen when we have not been notified of a change in your organization or Federal Employer Identification Number (FEIN). You can update your FEIN and make changes to your account online using e-Services for Business.
To request a FUTA recertification online:
- Go to Ask EDD.
- Select the Payroll Tax category.
- Select the FUTA Recertification sub-category.
- Select the FUTA Recertification topic.
- Select Continue and complete the necessary information.
If you have questions about your request, call our FUTA Recertification Unit at 1-916-654-8545.
If you have questions on the FUTA credit reduction, Form 940, or Publication 15 (2017) (Circular E) Employer’s Tax Guide, visit FUTA Credit Reduction on the IRS website.