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Federal Unemployment (FUTA) Credit Reduction, how to handle in Microsoft Dynamics GP.

By: Terry Heley – The Federal Unemployment (FUTA) credit reduction with relation to specific states seems to be getting more popular in 2012 with about 20 states participating in the credit.

The Department of Labor released a list of 2012 FUTA “credit-reduction” states. Employers in these 20 states and the Virgin Islands will experience associated tax increases.

The standard FUTA rate is 6.0% on the first $7000 of wages. Employers in most states receive a credit of 5.4% against the rate, resulting in a net tax rate of 0.6%. However, some states had Federal Unemployment Trust Fund loans – taken to keep their unemployment insurance benefit programs solvent during recent periods of extended high unemployment – that were still outstanding. As a result, these states will have their FUTA credit amount reduced for 2012 filing as a way to recover the funds still owed to pay back these loans, resulting, as noted, in higher taxes for employers in those states.

Instead of the standard 5.4% credit allowed, employers in these states will have a reduced credit of 5.1% for 2012 making their FUTA tax rate 0.9%:

  • Arkansas
  • Minnesota
  • Pennsylvania
  • California
  • Missouri
  • Rhode Island
  • Connecticut
  • North Carolina
  • Virginia
  • Florida
  • New Jersey
  • Virgin Islands
  • Georgia
  • Nevada
  • Wisconsin
  • Illinois
  • New York
  • Kentucky
  • Ohio

Employers in the following state will have their credit reduced from 5.4% to 4.8% for 2012 making the FUTA tax rate 1.2%.
Indiana

Employers in the following state will have their credit reduced from 5.4% to 4.5% for 2012 making the FUTA tax rate 1.5%.
Michigan

The Credit Reduction only applies to employers who pay SUI wages to the states listed above. All other employers will receive the full FUTA credit of 5.4%.

http://www.irs.gov/pub/irs-pdf/p926.pdf

Depending how largely this will affect you as a customer, there are a couple of options. There have been no changes implemented in the product to compensate for this.

Couple of workarounds:
1. Set the employees in that state, example MI, in a special class, then run the FUTA report by this class with the higher rate.
You are able to run the FUTA report by class from within Microsoft Dynamics GP.
Then run the rest of your employee at the lower rate

2. Add an “additional” FUTA amount to the state SUTA window (an additional percentage, since it is a state by state). Then adding the additional amount to the specific line on the 940.

If your company is running payroll for several of the states and you want to look at a more sophisticated solution that will meet your needs, I have talked with Greenshades.
They have applied these changes to their e-file to calculate the state specific reduced FUTA credit for the reduction states.

You can contact Gary Francart at gfrancart@ktlsolutions.com or by phone at 301-360-0001 ext 207 for more information on Greenshades.

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