My mother will register as a Calif new household employer this year. The Calif UI tax rate will be 3.4%. What will the FUTA tax rate be? I know that the max FUTA tax rate is 6.2%, and I know she gets credit for (at least) the 3.4% for the Calif UI tax. So I believe her FUTA tax rate would be at least 2.8%. But according to instructions for Sched H (1040) et al, she might receive additional credit based on her "state experience rate". That might increase her credit to the maximum of 5.4%, reducing the FUTA tax rate to 0.8%. Is that to be expected?
Can anyone tell me what the "state experience rate" is and how it is determined, conceptually? According to instructions, she would call the appropriate Calif employment agency to learn what her "state experience rate" is. But that is not possible, I presume, because she has not registered as a household employer.
If she pays timely SUTA tax and forms, the federal rate drops to .8%. That's of course, all computed on Schedule H.
Then it would generally be the entry rate for new employers. The state may have a rate for household employers that is different from the rate for all other commercial/business employers.
-- Paul Thomas, CPA snipped-for-privacy@bellsouth.net
By gosh and by golly, you're right! I shoulda worked through the computation in Sched H instead of simply reading the Pubs and instructions. Pub 926 says (emphasis added): "The FUTA tax is 6.2% [...]. However, you __may_be__ able to take a credit of __up_to__
5.4% against the FUTA tax, resulting in a net tax of 0.8%". Hmm, "may be" and "up to". I wonder under what conditions I can only take less? (Rhetorical.) I did not feel that the language of Pub 926 was dispositive, although it does mention the exception for late payment of state unemployment tax. So I looked at the instructions (sigh, not the form) for Sched H. It says (emphasis added): "Credit __for_contributions__ paid to state. You __may_be__ able to take a credit of __up_to__ 5.4% against the FUTA tax, resulting in a net tax rate of 0.8%". Hmm, there's "may be" and "up to" again. Since the credit is "for contributions paid to state", it seemed to me that it is "up to" only the amount paid to the state. And the conditions under which I could take even that much credit were based on tardiness or how much wages were exempt from state unemployment tax. But I still was not certain of my interpretation. So I consulted Pub 15. It says (emphasis added): "Generally, you can take a credit against your FUTA tax __for_amounts__ __that_you_paid_into_state_unemployment_funds__. This credit __cannot_be_more__ than 5.4% of taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after the credit is 0.8%". Well, I thought, that seems pretty clear. If I pay less than 5.4% state unemployment tax, I can only get credit "for amounts [...] paid". Wrong! Go figure! (No pun intended; well maybe ;->.)
Anyway, Paul, thanks very much for pointing out that the computation in Sched H disposes the questions clearly.
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