Get Answers Support Tax Filings & Payments 94x Forms Form 940 What is Credit Reduction in Form 940? Last modified 3/31/2023 3:44:27 AM EST A state that hasn't repaid money it borrowed from the federal government to pay unemployment benefits is a “credit reduction state.” If an employer pays wages subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax when filing its Form 940. The credit reduction rate for the tax year 2023 has been set at 0.6% for California, Connecticut, Illinois, and New York, while for the U.S. Virgin Islands, it is 3.6%. For the tax year 2024, the credit reduction rate has been increased to 0.9% for California, Connecticut, and New York and 4.2% for the U.S. Virgin Islands. Was this helpful? Yes No Related Questions What is Form 940? Who must file form 940? What Form should the Multi-state employer use for reporting the unemployment taxes? Who are Multi-State Employers? Go to Home Page Need more help? Get in touch with our dedicated support team Contact Us (704) 684-4751 support@taxbandits.com Sign Up for a FREE TaxBandits Account! The Smart CPA Choice Register Now Already have an account? Sign in