Employers here at risk of higher FUTA tax rates

Now that IRS has released Form 940 for 2021, employers can begin preparing their federal unemployment tax returns.

Employers have until Jan. 31, 2022 to file the form and deposit or pay any FUTA tax due.

For 2021, there’s only one “credit reduction state,” according to the Form 940 instructions, which IRS posted on its website along with the form at the beginning of December 2021. The Virgin Islands will see a 3.3% credit reduction rate, IRS said. No other states will see a credit reduction for 2021.

But the picture could look a lot different for 2022. Next year at this time, employers in several states could be hit with higher FUTA tax rates.

That’s because nine states may still owe money they borrowed from the federal government to pay unemployment benefits during 2020.

States have until Nov. 10, 2022 to get to a zero fund balance. If they can’t repay the money by then, employers in those states will face a 0.3% reduction in the FUTA tax credit.

In addition to the Virgin Islands, the states to watch are California, Colorado, Connecticut, Illinois, Massachusetts, Minnesota, New Jersey, New York and Pennsylvania.

FUTA tax due on these fringe benefits

Included in the Form 940 instructions, IRS reminded employers that two fringe benefits are currently not excludable from income. Therefore, employers shouldn’t include them on Form 940, line 4 for 2021, IRS noted.

They are moving expense reimbursement and bicycle commuting reimbursement. The Tax Cuts and Jobs Act suspended the exclusion for those fringe benefits until 2026.