Credit Reduction State

A credit reduction state is one that has borrowed from the federal government to pay unemployment benefits and has not repaid the loan in time. Employers there get a smaller FUTA credit, so they pay more than the usual 0.6%.

A state lands on the list after carrying a loan balance on January 1 of two years in a row without repaying it by November 10 of the second year. The cut starts at 0.3% and grows each year the loan stays open. The Department of Labor publishes the final list each November.

The extra FUTA is owed for the whole year and paid with Form 940 in January. The payroll calculator lists any states on the current list and adds the reduction to employer costs there.