Federal Unemployment Tax Act (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.

Additional Information

If you have questions on the FUTA credit reduction, Form 940, or Publication 15 (2017) (Circular E) Employer’s Tax Guide, visit the FUTA Credit Reduction page on the IRS website.