Final FUTA Tax Rates by State
The normal FUTA tax rate is 6% on wages up to $7,000, however, if the farmer timely pays their State Unemployment Taxes (and meet certain other rules), they are allowed to take a 5.4% credit to bring the net FUTA tax per employee down to .6% (on $7,000 this equals $42 of FUTA tax).
However, for several years, the IRS has reduced this credit for any state that has borrowed money from the federal government under Title XII of the Social Security Act and not paid it back. The reduction in the credit will be based on the number of years the loan has been due.
The Department of Labor has issued an updated spreadsheet showing the actual 2014 credit and net FUTA tax owed by each state. In brief, 43 states will have the full 5.4% credit available. Five states will have a reduction in their FUTA credit of 1.2% resulting in a net FUTA tax of 1.8% and they are:
- California,
- Kentucky
- New York
- North Carolina
- Ohio
Indiana’s FUTA credit is reduced by 1.5% resulting in a net 2.1% FUTA tax rate. The worst state is Connecticut which sees a 1.7% reduction resulting in a net FUTA tax of 2.3%.
Several of these states have large farming operations and those farmers will be subject to a higher FUTA tax rate than other states.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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