Client Alert: Another FUTA Surcharge for Ohio Employers

Kathleen Hargrove on November 20, 2015

For the fifth year in a row, Ohio employers will be subject to additional federal unemployment tax act (FUTA) surcharges for 2015 tax filings.

The FUTA charge for employers is 6% of the first $7,000 wages paid to each employee, per year. Generally, employers receive a credit of 5.4% against this rate if they also pay unemployment taxes to their state. This results in a net unemployment tax to the federal government of .6% of the first $7,000 in wages.

However, if a state has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid those loans within the specified time frame, then all employers paying wages in those states are subject to additional unemployment insurance tax at the federal level beginning after the 2nd year of balance due.

This additional tax is referred to as a “credit reduction.”  The 5.4% credit is reduced by .3% each year that the loans are not repaid to the federal government by November 10th. Unfortunately, Ohio is one of only 3 remaining states, and one jurisdiction, that still have outstanding loans to the federal government. The other locations subject to credit reductions are California, Connecticut and the Virgin Islands.

Since this is the 6th year that Ohio has loans outstanding, the credit reduction for Ohio employers for 2015 will be 1.5%.

  • For employees earning more than $7,000 during the year, the maximum tax increases from $42 to $147.
  • Employees earning less than the $7,000 limit will have the additional 1.5% tax due on all earnings for 2015.

Generally, federal unemployment taxes are deposited with the federal government quarterly at the rate of .6% of the first $7,000 wages paid per employee. The additional tax due for the credit reduction will be payable with the 4th quarter deposit and annual filing of Form 940. So, this additional payment will be due by January 31, 2016.

For cash planning purposes, multiply your YTD Federal unemployment tax payments by 2.5 for an estimate of the additional liability that will be due in January.

We hope this information has been helpful to you; if you have questions about the FUTA tax for your business, please contact your Whalen & Company representative.