FUTA Credit Reduction State?
US Intuit Online PayrollIn payroll liabilities the FUTA amount owing does not match what is on the 940 form generated by Quickbooks. says I am in a credit reduction state. Is this new?
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12/26/11 12:59pm PST
Viewed by asker 01/23/12 9:38am PST
Viewed by asker 01/23/12 9:38am PST
26 Replies
Maria_D
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12/27/11 3:37pm PST
The solution
Hi there!
For tax year 2011, there are 21 FUTA credit reduction states that had outstanding federal loans for state unemployment insurance and as a result, employers in these states will see an increase in their FUTA taxes retroactive to January 1, 2011.
This means that even if you paid all of your state unemployment taxes on time in 2011, you will now owe the federal government additional money to make up for the new, retroactive rate change.
Intuit Payroll makes all the necessary changes to support the credit reductions on the Form 940 and Schedule A for 2011.
Why is this happening?
The FUTA Credit Reduction states listed have not repaid the outstanding loan balance they borrowed from the federal government to pay for unemployment benefits.
Most employers can claim a credit of 5.4% for state UI taxes paid when they calculate their FUTA Tax liability. This means more employers pay the FUTA rate of 0.8% for wages paid through June 30, 2011 (6.2% - 5.4%) and 0.6% of wages paid after June 30, 2011 (6.0% - 5.4%) for the first $7,000 of wages paid to each employee. In accordance with Title XII of the Social Security Act, the federal government is entitled to recover outstanding loans to states by reducing the FUTA credit it gives to employers. This is the equivalent of an overall increase in the FUTA tax. The reduction in the FUTA tax credit is 0.3% for the first year and an additional 0.3% for each succeeding year until the loan is repaid.
Who does this affect?
Any business that pays wages subject to the unemployment compensation laws of the states of Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, Virgin Islands, and Wisconsin are subject to the Credit Reduction in 2011.
Note: Intuit Online Payroll Customers - No action is required on your part. Intuit Online Payroll will be making the necessary changes in an upcoming release.
Feel free to reach out to us directly if you need further clarification on this matter.
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Intuit Online Payroll | QuickBooks Online Payroll (QBOP) Service & Support Specialist
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01/03/12 10:11am PST
I see that Quickbooks has made the adjustment on the form but what about in the payroll liabliltiy in the payroll center. The amount owed before the credit reduction is the only amount shown to be paid and entered into the check register. How is this adjustment then made?
01/03/12 11:28am PST
You will need to make a payroll adjustment. From the screen where your scheduled liabilities show up, click below it on Related Payment Activities and then click on Adjust Payroll Liabilities. Make sure the date is 12/31/2011. The adjustment is for the Company. Under Item Name list Federal Unemployment and then put in the amount of your adjustment in the amount column. Make sure that you click on Accounts Affected on the right hand side of the screen and make sure that Affect liability and expense accounts is the radio button selected. Click OK on that screen and then OK on the Adjustment screen. Then the amount due will appear in the Scheduled Liabilities section.
01/09/12 11:15am PST
Nice tip.
This one really helped. I was able to create a payment liability as described and make a e-payment. After the payment was made, the 940 generated which showed zero balance due.
Thanks much,
01/10/12 8:31am PST
Thanks for the great advice. I did notice, though, that the extra federal unemployment tax due to the credit reduction does NOT show up in the payroll summary report if you make the payroll liability adjustment a company adjustment. If you want the payroll summary report to reconcile to the P&L, then enter the adjustment by each employee.
01/10/12 8:45am PST
One more point to note -- if you adjust by employee, enter the amount of the adjustment and make the wage base zero in the adjustment window or it messes up the 940.
12/29/11 10:22am PST
Thank you. I guess my next question is - how is the small business person supposed to know about this? I haven't received anything from the feds about it. I only noticed it because I ran my 940 on quickbooks and it showed that I owed money. That amount owed did not show up under my payroll tax liabilities list. Shouldn't Quickbooks have adjusted that so that the amount showing as being owed is the same under the liabilities list and on the 940?
12/30/11 6:42am PST
The state is to send notification to all businesses in regards to this information. It may be included when they provide you with your new years Unemployment rate or they can send out information through out the year. I am quite sure that you can also visit your states website to gather more information and how communication was distributed for this.
As in regards to QB Online, our system will great the adjustment at the time you pay the 940 taxes. You will show the normal FUTA amount and then a adjustment before for the Credit Reduction.
01/03/12 6:07am PST
Totally confused by this! There is no liability showing in QuickBooks to pay this amount. Why not? If the form can calculate it then why is there not an entry being posted. If I'm confused, I can't wait to see how my clients deal with this mess. Am I supposed to post a journal entry? Are my clients supposed to somehow magically figure out what to do with what they now owe?
01/06/12 12:00pm PST
Hello. I think all you and the clients will have to do is click on the Related Payment Activities and choose Adjust Payroll Liabiliites and put the info in. I noticed this problem when I went to run my summary and then the form and was like UHMM WHAAAAAAAAAT!!! And my state (Illinois) has not sent anything out about this credit reduction, nothing that I have seen anyways. Make sure you change the effective date to 12/31/2011 so it will show up as the right date. Not quite for sure why the federal and state governments expect us to read and understand their legal babbling when they come up with this stuff. The Dept. of Labor and the IRS website, don't really offer much help either as it is not easily found when searched and when you do find something, it's not what you were looking for.
Have no fear though, I figured out what to do by these posts and it was fixed in less than a minute :)
Beth
VIVO Technology
01/09/12 12:53pm PST
I didn't like getting surprised by this extra expense at the end of the year, so for 2012, I set up a Company Contribution for .3% up to $7,000 and added it to each employee's record. I would rather accrue for the expense all year and then not have to pay it, rather than have expense $2,000 in December to account for the additional tax.
01/09/12 2:02pm PST
This is a great idea but can you still pay the extra amount electronically through QB if you don't adjust it to FUTA? I suppose you'd need to pay through the EFTPS website instead.
01/09/12 2:36pm PST
Make the adjustment first and then pay it through QuickBooks as you normally do.
01/09/12 3:08pm PST
If you use a company contribution item as recommended by CJForgus, it's not possible to pay EFTPS from QuickBooks. I don't see a way to make QB understand that the company contribution is FUTA.
01/09/12 3:45pm PST
I see your point. If you went that path, you would probably then want to make a FUTA adjustment at the point you were ready to pay it. You would then need a separate journal entry to relieve the accrued FUTA and also to get rid of the FUTA expense you would then be recording in December. So after making the FUTA adjustment as discussed above in this thread, you would then make a journal entry debiting the Accrued FUTA account and crediting the FUTA expense account.
01/10/12 8:58am PST
"If the form can calculate it then why is there not an entry being posted?" I agree with QuickbooksRocks. It sure seems like a small step from calculating it on the form and having it show up in the Payroll Center. And it would have avoided all this confusion.
01/12/12 3:03pm PST
Agree with SimpleGreen...intuit just needs to fix it (and fix it now...else a moot point after 1-31-12) so the liability screen computes the correct balance due and post the additional tax as FUTA tax expense. Preparers don't need another additional item to deal with during busy season.
01/14/12 1:52am PST
My purpose in adding the FUTA-Credit Reduction payroll item is to accrue for the expense during the year. We won't even know if we owe for it until ruling in November. If you don't owe it, then just adjust it off. If you owe it, make a separate payment through EFTPS and then record that payment in QB using the FUTA-Credit Reduction payroll item. This is just a fix if QuickBooks can't figure out a way to do it properly.
Maria_D
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01/14/12 12:24pm PST
As a friendly reminder in case my previous response was missed.
Intuit Online Payroll & QuickBooks Online Payroll will create a adjustment when you go pay your 2011 940 taxes.
Example:
2011 FUTA payment will show $89.00 due. Click on Pay Taxes
When you do this the adjustment will be created and the additional FUTA due to the Reduction will show.
You will now see your 940 payment to be due for more then the $89.00. This will match the 940 forms amount due showing.
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01/14/12 4:14pm PST
Sorry - that didn't happen in my case. I had to do a journal entry to match the liabilities to what the 940 said.
