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FUTA credit reduction state

If a state borrows money from the federal government to cover its state unemployment benefits liabilities and does not pay them back within the set timeframe, it is considered to be a credit reduction state.


This impacts employers in that particular state as they will pay more in FUTA taxes to the federal government.


FUTA credit reductions are reported on the IRS 940 filing form and attached Schedule A for customers in an eligible FUTA credit reduction state. For more information about FUTA credit reduction and how it impacts unemployment taxes, please see the following IRS page.

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