RI Employers to Pay More Due to FUTA Credit Reduction

January 16, 2013 Written by

Rhode Island employers will have to pay more in federal unemployment insurance tax than they otherwise would come January 31, 2013.

It’s because the state still owes on money it had borrowed
from the federal government a few years ago to help pay benefits to the unemployed.

The federal unemployment insurance tax, also known as FUTA, is generally 6 percent of the first $7,000 of each employee’s
wages.

If you’re an employer, you generally get to claim a credit for the state unemployment insurance tax you pay.

You apply the credit against your FUTA tax. The credit is typically 5.4 percent, which reduces your FUTA tax rate to 0.6 percent.

But if you’re a Rhode Island employer, you will get a credit of just 4.8 percent. As a result, your FUTA tax rate will be 1.2 percent.
So you’ll generally have to pay $84 of FUTA tax per employee (1.2 percent of the first $7,000 of each employee’s
wages), instead of $42 per employee (0.6 percent of $7,000 in wages).

You’ll see the impact on your FUTA filing for 2012,
the one that’s due by January 31, 2013.

Rhode Island is not the only state affected. Employers in
18 other jurisdictions will pay more than they otherwise
would in federal unemployment
insurance tax for 2012.

Employers in those states – known as “credit reduction
states” – cannot claim the full credit against their
FUTA tax if the state’s loan remains outstanding for a
certain period of time.

(Rhode Island’s loan balance on January 3 was
$199.79 million.)

For more information, please call the office

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Written by: Doug Rodrigues