California Employers Could See Return to Minimum FUTA Rates

Friday, August 31, 2018
California Employers Could See Return to Minimum FUTA Rates

A stronger economy has pushed California back into the black for federal unemployment insurance loans, which could bring the state federal unemployment tax (FUTA) rates back to the minimum rates by the end of the year.

The state's Employment Development Department (EDD) reported in its May forecast that the state's Unemployment Fund balance is expected to end the year with a positive balance of $2.1 billion. It would be the first time the fund has seen a positive balance since 2008 and could trigger a return to full credit status, which reduces the amount of federal unemployment insurance that California employers pay. California ended 2017 with a deficit of $1.1 billion in its unemployment fund, but is  projected to reach a positive balance of $2.6 billion by next year, according to the forecast.

Turnaround Could Be Temporary

As unemployment falls, the state's benefit payments are projected to level off. But, the EDD warns, the turnaround could be temporary. "If changes are not made to the current financing structure, the UI Fund may not maintain a balance high enough to withstand an economic downturn," the forecast warns.

California unemployment was 932,000 in 2017, and projected by the EDD to fall to 868,000 this year, and climb to 878,000 in 2019.

Employers are required to pay into the federal unemployment insurance fund with a payroll tax that is applied to the first $7,000 of an employee's wages. The percentage is adjusted by a credit that is reduced for states that have to borrow from the federal government for two consecutive years to pay their unemployment insurance benefits.

Currently, only California and the U.S. Virgin Islands are subject to a reduction in that credit, which means that employers in those jurisdictions pay unemployment insurance taxes at a higher rate than the rest of the country.

Last year, that meant that California employers were taxed up to $147 more, per employee, in federal unemployment taxes for the 2017 tax year, according to the California EDD.

But if California, as expected, ends the year with a positive balance, it may be entitled to a return to the full credit, which would bring the tax rate down to the minimum rate of 0.6%, or $42 per employee. The determination is made in November.

Payroll Done Right

Whatever the forecast brings, your payroll processes have to be able to keep up. At SBS Payroll, we have been helping California businesses do payroll right for more than two decades. That means doing a lot more than just payroll. Our clients also have access to comprehensive HR support, in addition to time and attendance, payroll tax and ACH direct deposit services and expertise available through our sister companies, Time Rack, Payroll Tax Management and Cachet Financial Services.

Our clients sleep well at night knowing their needs are covered across the entire landscape of compensation services no matter what the forecast.

Call us to find out how you can benefit from state-of-the-art payroll technology, first-rate customer service and a range of expertise you can't outgrow. We're the whole package.


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