IRS 2022 940 Tax Increase of 900% - Has Anyone Dealt With This FUTA Issue?

Just got blindsided by an IRS notice about our 2022 FUTA taxes. They're claiming that five states didn't send them our unemployment information for 2022, and now they want to hit us with a 900% increase in FUTA tax! We're a small business with only about 25 employees, and this would absolutely crush us. The notice says we can avoid this massive tax increase if we provide unemployment recertification from all five states. I've been calling these state unemployment offices for days, but they're basically telling me to get lost or that they don't handle these requests. Has anyone dealt with this FUTA tax nightmare before? I'm completely lost on how to proceed. We tried calling the IRS directly, but even the agent we spoke with seemed confused about the whole situation. They kept putting us on hold to consult with supervisors. This 900% increase would be devastating for our business right now. Any advice on how to get these state unemployment recertifications or navigate this IRS mess would be incredibly helpful!

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18 comments

Noah Irving

•8M

This is related to the FUTA credit reduction states. When a state has outstanding federal loans for unemployment benefits for two consecutive years, employers in that state lose a percentage of their FUTA credit, effectively increasing the FUTA tax rate. For 2022, there were several credit reduction states - likely the five states mentioned in your notice. The standard FUTA rate is 6.0%, but with the full credit, most employers pay only 0.6%. In credit reduction states, that rate increases, which explains the "900% increase" language (going from 0.6% to 6.0% is a 900% increase). You need to get Form 940 Schedule A to document your FUTA payments to those specific states. The state unemployment agencies won't help directly because they don't handle the FUTA credit reduction process - that's between you and the IRS. What you need to prove is that you actually paid your state unemployment taxes to those specific states.

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Noah Irving

•8M

States don't automatically report individual employer unemployment tax payments to the IRS - the systems aren't integrated that way. The burden is always on the employer to document FUTA credit eligibility through proper completion of Form 940. The credit reduction happens at the state level, not the individual employer level. So even if you paid all your state unemployment taxes, if your employees worked in states that are designated as credit reduction states for 2022, you'll still face the higher FUTA rate unless you can document exactly which employees worked in which states and the corresponding state unemployment taxes you paid.

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Madison King

•8M

I was in a similar situation last year with the FUTA credit reduction mess. After weeks of getting nowhere, I used taxr.ai (https://taxr.ai) to help me sort through all our unemployment tax documents. Their system analyzed our state unemployment payments and generated the documentation needed for the IRS. The tool basically scanned all our state unemployment tax forms, organized them by state, and created a report showing we had paid all required taxes. It saved me from having to manually collect and organize proof for all our multi-state employees. Their document analyzer even flagged a discrepancy in our New Jersey filings that would have caused problems with the IRS.

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Madison King

•8M

The document scanning works with both digital files and photos of paper documents. You can upload PDFs if you have them electronically, or use your phone to take pictures of paper records. The system is pretty flexible and can handle different formats. I was definitely cautious about privacy at first, but they use bank-level encryption and delete your documents after processing. And yes, the IRS accepted everything without question. The documentation package it created included all the payment references and certification numbers the IRS needed to verify our state unemployment tax payments.

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Ella Knight

•8M

Just wanted to follow up about my experience with taxr.ai after being skeptical in my previous comment. I decided to try it with our FUTA problem since nothing else was working. Uploaded all our quarterly unemployment tax payments from the five states in question, and the system organized everything into exactly what the IRS needed. The report it generated showed all our timely state unemployment payments with reference numbers, which saved me from having to get "recertification" from each state. Called the IRS back with this documentation and they removed the 900% FUTA increase from our account within a week. Definitely worth it for solving this specific FUTA credit reduction issue!

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William Schwarz

•8M

I had this exact problem with FUTA credit reduction states in 2022. After getting nowhere with state unemployment offices, I found Claimyr (https://claimyr.com) - they got me connected to a real person at the IRS in about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS rep I spoke with explained that I needed to submit Form 940 Schedule A with documentation of my state unemployment tax payments for each affected state. They also advised me to write a letter explaining that I had made all required payments but the states failed to report them. Got the whole thing resolved in about 2 weeks instead of the months I was expecting.

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William Schwarz

•8M

It's not magic - they use a system that navigates the IRS phone tree and waits on hold for you. When an actual IRS agent picks up, you get a call connecting you directly to that person. You don't pay anything unless you actually get connected. Yes, I absolutely got my FUTA issue resolved. The IRS agent I spoke with helped me understand exactly what documentation I needed to provide for each of the credit reduction states. They even gave me their direct extension for follow-up questions. The whole process took about 2 weeks from that call to getting confirmation that the additional FUTA tax was removed.

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Jade Santiago

•8M

I need to apologize for my skeptical comment above. After getting another FUTA notice with an even higher penalty, I was desperate enough to try Claimyr. Within 45 minutes, I was actually speaking with an IRS agent who specialized in employer taxes. The agent explained that for 2022, California, Connecticut, Illinois, New York and New Jersey were all FUTA credit reduction states, and walked me through exactly how to document our unemployment tax payments. They even emailed me the specific forms needed for each state. Would have never figured this out without speaking to someone who actually knew what they were talking about!

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Caleb Stone

•8M

Our company faced this in 2022 with employees in California and New York (both were credit reduction states). The key is gathering your proof of state unemployment tax payments - specifically copies of all quarterly contribution reports and payment confirmations. We organized them by state and quarter, then sent a certified package to the IRS address on the notice with a cover letter explaining that we had paid all state unemployment taxes. Included our EIN and the notice number on everything. It took about 45 days, but they reversed the additional FUTA tax assessment.

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Caleb Stone

•8M

We didn't need to submit a revised Form 940. The documentation of state payments was sufficient since we had already filed the original Form 940 correctly - the issue was just that the states hadn't reported our payments to the IRS. I'd recommend having your accountant review the documentation package before submission though. In our case, our accountant noticed that we needed to include Schedule A of Form 940 to properly document the credit reduction states where we had employees. This was crucial for getting the assessment reversed.

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