FUTA credit reduction true-up

Forty people on a California payroll, 62,000 average wages, and the FUTA line in the accrual is short by 4,200 dollars - 105 dollars per employee - money the payroll system never set aside because it charged 0.6 percent all year. That is the arithmetic every US bookkeeper with California or U.S. Virgin Islands staff meets in November.

FUTA is 6.0 percent on the first 7,000 dollars of each employee's wages. Employers who pay their state unemployment tax on time get a 5.4 percent credit against it, which is why the number in your chart of accounts is 0.6 percent. But when a state borrows from the federal unemployment account and has not repaid the loan by November 10, the Department of Labor cuts that credit. The reduction starts at 0.3 percent in the second year the loan is outstanding and climbs another 0.3 points each year it stays outstanding.

Two things make this expensive. The first is that the reduction is retroactive: announced after November 10, applied to the whole calendar year, including wages you paid in February and budgeted at 0.6 percent. The second is that FUTA is charged per employee on the first 7,000 dollars, not on total payroll. A landscaping company with 150 seasonal workers at 4,200 dollars each has a smaller payroll than a 40-person office but a bigger FUTA base: 630,000 dollars against 280,000. At California's confirmed 1.2 percent reduction for tax year 2025, that seasonal employer owes 7,560 dollars of extra tax, against 4,200 for the office at the 1.5 percent 2026 step.

The list is the hard part to look up. For tax year 2025 the reduction states are California at 1.2 percent and the U.S. Virgin Islands at 4.5 percent. New York is not one - it repaid its loan - and neither is Connecticut or Illinois, which appeared on older lists. Ask a language model and you will often get New York back, because the list changed after its training data was written. Free FUTA calculators hard-code the 0.6 percent net rate with no credit-reduction field at all.

The extension is the arithmetic in between. You pick the state and the rate scenario - the confirmed 2025 figure, or the 0.3-point step that state would take for 2026 if the loan is still unpaid on November 10, 2026 - then enter headcount, average wage, and the rate your payroll system has been accruing at. It caps every worker at the first 7,000 dollars, charges 0.6 percent plus the reduction, and returns the taxable wage base, the extra tax, the extra per employee, the shortfall against your accrual, and the total for Form 940.

It holds the dates too. Form 940 for tax year 2026 is due February 1, 2027 - January 31 falls on a Sunday. Enter the date you will actually pay and the tool applies the late-payment penalty under IRC 6651(a)(2): 0.5 percent of the unpaid tax per month or part month, capped at 25 percent. For the seasonal employer above, paying on April 1 instead of February 1 adds 113.40 dollars to an 11,340 dollar bill.

All of that is free and needs no key: any state, any headcount, any wage, no watermark, no usage limit. Ten figures come back from five inputs. The paid tier sits on a different axis - ownership and repetition, not scope. Twenty-nine dollars once buys a .csv export you keep and hand to your accountant, plus browser alarms for the November 10 announcement and the February 1 filing date. An outside payroll accountant re-running Schedule A is one to two billable hours at 50 to 150 dollars an hour, every year the list changes. Payroll numbers never leave the machine; the only outbound request is licence-key validation.