Drake Accounting®: What is the credit reduction rate used for on the 940 Tax Deposit?
A state is a credit reduction state if it has taken loans from the
federal government to meet its state unemployment benefits liabilities
and has not repaid the loans within the allowable time frame.
To use this option
- Go to the Firm > Rates & Withholding Setup > State Setup > Select the State and enter (as a decimal) the additional percentage amount employers will be required to pay.
The entry provides a credit reduction calculation on the 940 Tax Deposits screen at Employees > Tax Deposit > 940.
The screen displays a calculation of the various FUTA amounts, the
amount of the additional credit reduction percentage, and the total
deposit.
A display of credit reduction deposit information is available at Employees > Reports (Crystal Reports® in DAS21 and prior)> Federal Unemployment Tax Journal.
Any rate entered in the Credit Reduction Rate
field is an estimate to assist you in making sufficient tax deposits to
avoid a shortfall at the end of the year. The actual rate for each
affected state is released by the IRS near the end of the year and
incorporated into the software by an update. The actual rate is used in
FUTA tax adjustments for the 940 Schedule A.
You may have to make FUTA tax adjustments to conform
your estimate to the actual rate (such as adding the credit reduction
amount adjustments manually to match the Form 940 Schedule A
calculation).