(USA) Setting Up FUTA State Credit Reduction

To use PeopleSoft functionality to calculate additional employer tax liability imposed by the Federal Unemployment Tax Act (FUTA) on wages paid to employees in FUTA Credit Reduction states (Tax Class 6), you must set up the FUTA Credit Reductions data.

To set up FUTA Credit Reduction data, do the following based on your company’s needs:

1. Define the official FUTA Credit Reduction states on the FUTA State Credit Reductions page. See(USA) Viewing Federal and State Tax Tables.

   The FUTA Credit Reduction states table is a customer-maintained table. Oracle/PeopleSoft does not maintain it. However, Oracle/PeopleSoft does include the list of FUTA Credit Reduction states in the December tax update each year. You are responsible for using the information to update the FUTA State Credit Reductions table as necessary.

   Based on your company’s needs, you may choose to let the Credit Reduction State status of states for the preceding year roll forward for payroll processing in the next year, for example, while waiting for the U.S. Department of Labor’s announcements in the following November. In this case, you do not need to add a new row to the table for the year. The system uses values from the most current effective-dated row.

   You may choose to add a state mid-year, for example if you learn that a state is likely to be identified as a Credit Reduction State in November. You may also choose to end a state’s Credit Reduction status mid year (change Credit Reduction Rate field to zero) if you learn that the state has repaid its loan to the Federal Unemployment Account and will not be identified as a Credit Reduction state on the November list.

   Note: Important! To maintain the self-adjusting feature of the FUTA Credit Reduction Tax functionality, once you have confirmed a payroll with a particular state identified as a Credit Reduction State (Credit Reduction State check box is selected on the FUTA State Credit Reductions page), do not de-select it until after the final payroll for the tax year has been calculated and confirmed. To end a state’s status as a Credit Reduction State mid-year, leave the check box selected, but change the value in the Credit Reduction Rate field to zero.

2. Select the appropriate Tax Class on the GL Interface, on the Tax Expenses page (PYGL_ACTIVE_TAXGRP). See Grouping Earnings, Deduction, and Tax Expenses.. For example, to represent FUTA Credit Reduction (Tax Class 6) for Non-Commitment Accounting, select the FCR (FUTA Credit Reduction) tax class.

   Note: For General Ledger activity grouping purposes, tax expenses for mapping for Federal Tax Class FCR can either be 1) combined in the same tax groups with Federal Tax Class FUT, or 2) set up to be processed in a separate tax group for expense distribution.

   Option 1: Combine amounts for both Federal Unemployment Tax (Tax Class = FUT) and FUTA Credit Reduction (Tax Class = FCR) in the same Tax Group under Tax Expenses.

   Option 2: Track amounts for Federal Unemployment Tax (Tax Class = FUT) and FUTA Credit Reduction (Tax Class = FCR) separately and individually: 1) Review the existing Tax Group under Tax Expenses for Federal Unemployment Tax (Tax Class = FUT); 2) Add a new separate Tax Group under Tax Expenses for FUTA Credit Reduction (Tax Class = FCR); and 3) On the U.S. Tax Mapping page (PYGL_CO_CF_MAPTAX), map the expense account to the new Tax Group. See Mapping Expense Groups to ChartField Combinations.

   For more information on FUTA Credit Reduction States and how they affect an employer’s unemployment taxes, refer to the Internal Revenue Service website: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/FUTA-Credit-Reduction.

3. On the Tax Type Table page (TAX_TYPE_TBL for USA, or CAN_TAX_TYPE for CAN)), create a Tax Type entry (for example, ADDL FUTA) to include payments of FUTA Credit Reduction amounts in the Accounts Payable extract. See Setting Up Tax Types for PeopleSoft Payables Integration.

For Accounts Payable extract processing, payments of FUTA Credit Reduction amounts must be set to process with Federal tax.

1. On the AP State Tax Types/Classes Table page (LOCL_TAX_TYPE_PNL), set up one table entry for State = $U. See Setting Up Tax Types for PeopleSoft Payables Integration

2. Complete the Extract AP Federal Taxes page (RC_X_TAX_FEDERAL) run control page for the FUTA Credit Reduction tax type. See Extracting Deductions

3. Complete the FUTA Credit Reduction Tax page to run the FUTA Credit Reduction Tax Verification program (TAX020.SQR) to verify and adjust employee Tax Balance records for FUTA Credit Reduction (Tax Class 6) amounts. The TAX020.SQR program performs the same functions for YTD FUTA credit reduction tax amounts that program TAX017.SQR (Quarterly State Unemployment Tax Verification) performs for QTD state unemployment tax amounts.

   For information about these reports, see Tax Reports (TAX) in PeopleSoft Payroll for North America Reports: A to Z.

   Note: You can run the TAX020.SQR report in Report Only or Update mode.

   Use Report Only mode to verify employee FUTA Credit Reduction Tax Balance records without actually updating any employee Tax Balance records. The output report will list all employees for whom YTD tax does not = YTD taxable wages X the Credit Reduction Rate, as well as the dollar amount of any required adjustment. However, no Tax Balance records will be updated.

   After running the program in Report Only mode, and reviewing the report output, you can choose to run the program in Update mode to update employee Tax Balance records. The output report will lists all employees for whom Tax Balance records have been updated, and the dollar amount of the adjustment made for each employee.