Tax Tips: Annual 940 Payroll Form - Credit Reduction Tax Increase
Tax Tips for Small Business Owners - Credit Reduction State.
A state that has not repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state.” The Department of Labor determines these states. If an employer pays wages that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax when filing its Form 940.
For 2011, there are credit reduction states. If you paid any wages that are subject to the unemployment compensation laws of any of these states, you are not allowed the credit reduction rate (i.e., .003 or .006) of the regular .054 credit for the credit reduction state. Use Schedule A (Form 940), to figure the tax. For more information, see the Multi-State Employer and Credit Reduction Information, Instructions for Schedule A (Form 940) or visit IRS.gov.
If you are using an electronic filing system you should be prompted for the credit reduction calculation. If you are manually completing form 940 you will need to check if your state or if you have multi states need to conform to this law. For 2011, the following states are under the credit reduction: AR, CA, CT, FL, GA, IL, IN, KY, MI, MN, MO, NC, NJ, NV, NY, OH, PA, RI, VA, WI and VI.
If you have filed your 2011 annual 940 form and this tax increase was not included, you will need to file an amended 940 form.