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State FUTA Credit Reductions and Minimum Wage Increases

Thursday December 20th 2012

The last 60 days of each year present two predictable payroll changes:  FUTA credit reductions and minimum wage increases. Recent announcements have clarified what those changes will be.

 

FUTA Credit Reduction States

 

Here is a summary of the 18 states (plus the U.S. Virgin Islands) with a credit reduction because they failed to repay outstanding federal loans by the November 10, 2012, deadline: 

  • First year, employers in these three states will pay an increase of .3% in FUTA tax (maximum $21 per employee):  Arizona, Delaware and Vermont.
  • Second year, employers in these 14 states will pay an increase of .6% in FUTA tax (maximum $42 per employee):

Arkansas

California

Connecticut

Florida

Georgia

Kentucky

Missouri

Nevada

New Jersey

New York

North Carolina

Ohio

Rhode Island

Wisconsin

   
  • Third year, employers in Indiana will pay an increase of .9% in FUTA tax (maximum $63 per employee)
  • The Virgin Islands extra credit reduction is 1.5%.
  • These states dropped off the list for 2012 after being on the list for 2011:       

Illinois

Michigan

Minnesota

Pennsylvania

South Carolina

Virginia

   

 

Employers pay FUTA taxes at 6% on the first $7,000 of covered wages for each employee in a calendar year. This tax may be offset by credits of up to 5.4% (i.e., the “normal credit”) against FUTA tax liability for amounts paid to a state unemployment fund. A .3% credit would reduce that credit to 5.1%, thus making the net FUTA rate .9% (i.e., 6.0% – 5.1%). Affected employers must pay the additional taxes by January 31, 2013.

 

State Minimum Wage Changes

 

Here is a summary of the states that increased the minimum wage, effective January 1, 2013:

 

State

Standard Minimum Wage

Tipped Employee Minimum Wage

Arizona

$7.80

 

California (computer)

$39.90

 

California (physicians, etc.)

$72.70

 

Colorado

$7.78

$4.76

Florida

$7.79

$4.77

Missouri

$7.35

 

Montana

$7.80

 

Ohio

$7.85

$3.93

Oregon

$8.95

 

Rhode Island

$7.75

 

Vermont

$8.60

 

Washington

$9.19

 

 

Infinisource Payroll has updated its system and processes to handle these changes.

 

Are you surprised by the states that made the FUTA tax credit reduction list? Where do you think the national minimum wage (currently $7.25 per hour, $2.13 per hour for tipped employees) should be? If not, how would you change it? Please comment below.

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