California employers may be paying higher taxes starting January 1, 2012. The tax increase would amount to $21 per year for any employee who makes $7,000 or more in 2012. California employers pay UI taxes on the first $7,000 of wages per employee.

California has not repaid money it borrowed from the federal government to pay unemployment insurance (UI) benefits. Due to California’s outstanding loan balances, the U.S. Department of Labor notified the Internal Revenue Service and the California Employment Development Department (EDD) that the state is a “credit reduction state.”

Employers subject to unemployment tax laws of a credit reduction state must pay additional federal unemployment tax when filing a Form 940, according to the IRS website.

See CalChamber’s coverage of the potential increase to UI taxes for the complete story.

More Information
The EDD is advising employers with questions on the FUTA credit reduction, Form 940 or Publication 15 (2011) (Circular E) Employer’s Tax Guide to contact the IRS.