Why am I getting a notice about a tax variance due/refunded?

Payroll Tax Variances

Did you get a notification from Homebase about a payroll tax variance that you owe or that we are refunding to you? Don't worry, Homebase didn't make a mistake. Variances are very common and can happen for a several reasons.

What taxes were impacted by this variance? 

You can review a summary of a variance calculation on the Recap document provided by Homebase for each quarter. You can view this breakdown on the Payroll > Tax Records > Tax Filings page in your Homebase account. 

Because variances can be impacted by multiple tax changes, it's important to review the full picture on the Recap to understand why you were impacted. 

Why do variances happen?

A variance is almost always a result of three different things (sometimes all three):

1. You had a balance due (or owed to you) on your state unemployment insurance (UI) account. This might be carried over from when you were with a different payroll provider (if you are new to Homebase Payroll), or could be a calculation error by the state in a prior quarter.
2. Your UI rate was updated in the middle of the quarter (could go up or down) and some of the payments prior to the rate change were paid at the previous rate. Many states update the UI rate in January, so if yours changes, you will most definitely have a variance in how much was paid and how much was due depending on when the state got the notice to you and when you got the rate change notice to us.
3. A Payroll void. If you asked us (or your previous provider) to cancel a payroll transaction, sometimes this happens after a payment has been transmitted to the taxing agency. If that happens, the agency cannot refund Homebase, so it results in an overpayment on your account that gets reconciled at the end of the quarter.

So I have to pay Homebase this money?

Yes and no. This is not a fee you are paying Homebase. Homebase did the calculations for your business and is simply collecting the money, and paying it all to the state tax agency on your behalf. This is part of our service as your payroll provider. 

Do I have to do anything?

Generally, no. Homebase will collect/refund the money directly to the bank account you use for payroll. If you owe money, just make sure you have enough in the account to cover the balance due.

What is a Federal Unemployment Tax (FUTA) Credit Reduction? 

Many states borrow from the IRS to help support their state level unemployment benefit programs. For states in this group, the FUTA tax rate is 0.6% instead of 6%. This is a credit of 5.4% off the standard 6% rate. 

At the end of each calendar year, the IRS determines if each state has met their agreed loan terms with the IRS. If they have not, the state loses their privilege to apply the FUTA credit and employers in the state see their credit of 5.4% off 6% reduced in increments of 0.3%. 

For example, in a state's first year designated as a credit reduction state, the credit of 5.4% off 6% reduces by 0.3%. This effectively means that employers will owe an increase in FUTA of 0.3% on the 0.6% they paid throughout the year making their FUTA rate 0.9%. 

In successive years, as long as the state continues to not meet their loan repayment agreement with the IRS, this rate will continue to increase in 0.3% increments. The second year total rate 1.2%, the third 1.5% etc. Read more about credit reduction states and their rates on the U.S. Department of Labor website.

As defined by the IRS,