The normal FUTA tax rate is 6% on wages up to $7,000, however, if the farmer timely pays their State Unemployment Taxes (and meet certain other rules), they are allowed to take a 5.4% credit to bring the net FUTA tax per employee down to .6% (on $7,000 this equals $42 of FUTA tax).
However, for several years, the IRS has reduced this credit for any state that has borrowed money from the federal government under Title XII of the Social Security Act and not paid it back. The reduction in the credit will be based on the number of years the loan has been due.
The Department of Labor has issued an updated spreadsheet showing the actual 2014 credit and net FUTA tax owed by each state. In brief, 43 states will have the full 5.4% credit available. Five states will have a reduction in their FUTA credit of 1.2% resulting in a net FUTA tax of 1.8% and they are:
- New York
- North Carolina
Indiana's FUTA credit is reduced by 1.5% resulting in a net 2.1% FUTA tax rate. The worst state is Connecticut which sees a 1.7% reduction resulting in a net FUTA tax of 2.3%.
Several of these states have large farming operations and those farmers will be subject to a higher FUTA tax rate than other states.