Get Answers Support Tax Filings & Payments 94x Forms Form 940 What is a credit reduction state? Last modified 9/26/2023 3:41:46 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 that are subject to the unemployment tax laws of a credit reduction state, that employer must pay additional federal unemployment tax when filing its Form 940. Was this helpful? Yes No Related Questions What is Credit Reduction in Form 940? Who are Multi-State Employers? What information is required to file Form 940 for 2023? Are there any penalties associated with IRS Form 940? 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