There is a double Employer Tax whammy hitting employers in Ohio for 2017:
- FUTA Tax Credit is lower.
- Ohio Jobs and Family Services Rate is temporarily higher.
FUTA Tax Credit is Lower
Ohio is a credit reduction state. This means that Ohio takes loans from the federal government to meet its state unemployment benefits. Generally, employers receive a credit of 5.4% when they file their Quarterly 990. If a state, like Ohio, has an outstanding loan balance on January 1st for two consecutive years and does not repay the full amount of its loans, the FUTA credit for employers will be reduced until the loan is paid.
What does this mean for your business? Because the State of Ohio borrowed funds to cover unemployment costs, more tax is owed.
In 2017, employers can expect to pay an additional amount for each employee, due to Ohio’s credit reduction ironically being reduced. Generally the tax rate is about 6%, but small businesses have been receiving a credit in prior years of up to 5.4%.
- What is FUTA? FUTA refers to the Federal Unemployment Tax Act. This is the federal fund where employees must contribute a portion of unemployment taxes.
- When should you expect to pay FUTA taxes? Every year, on January 31st, employers must file a Form 940 for the preceding year, reporting those payments made for unemployment taxes.
- Helpful Resources
Ohio Jobs and Family Services Rate is Temporarily Higher
SUTA rates are temporarily higher for the same reason -- because of the recession, more money was paid out overall than was collected for unemployment. If you are a new business like BudgetEase, you began with a rate of 2.7%. This rate applies for 2-3 years maximum, then is adjusted for the industry you are in. BudgetEase is rated as Professional Service/Scientific which should be at a 3-3.5% rate.
For new companies like BudgetEase and some of our clients, there is a 66% increase in SUTA because we were moved from the starting rate coupled with the temporary increase. This year BudgetEase was bumped to 4.5% instead of 3-3.5%. The extra 1% is a temporary increase until the deficit amount is paid back into the system. All of our rates should go down next year or the following year.
The SIC code rate is based on not just my experience with people leaving BudgetEase, but also based on everyone else with the same code in Ohio and my region. If I were a manufacturer that was heavily hit by unemployment in Ohio, my rate would be 7% or more. Ohio was hit hard in the recession and now is payback time which is a burden to all of us.
Keep in mind that the real cost of an employee is not just the hourly wage or salary. Read more in our blog, How to Calculate the Real Cost of an Employee. There is a sample paycheck you can use to calculate the real cost of an employee.
At BudgetEase, we are here to make YOU more profitable by keeping you up-to-date on items that may impact your business! I am Kathy Dise, and you can reach me at email@example.com.