Tax Variance Notices - Common FAQs

Notifications from Homebase about a payroll tax variance that you owe or that we are refunding to you are very common and can happen for a several reasons.

Homebase will debit or credit your variance on the 5th business day of the month following the end of a tax quarter. You'll receive an email notification of this action for your records.

What taxes were impacted by this variance?

You can review a full breakdown of a variance calculation in the Balancing Payroll summary, which Homebase provides for each quarter. To access it:

Sign into your Homebase account.
Click Pay in the left menu, then select Payroll.
Click Tax Records in the left menu under Payroll.
Select the Tax Filings tab.
Next to Balancing Payroll, click Download.

Note: Homebase can only ensure accuracy for balanced totals if the report is downloaded after the fifth day into the new tax quarter. Anything downloaded before that may not account for current totals.

You will then receive a file that shows the status of each tax change that occurred during the tax period, the adjustment amount per quarter, and whether the net result is a refund or a debit to your account.

Note: Because a single variance can reflect multiple tax changes, reviewing the full Balancing Payroll summary is the best way to understand exactly what drove the adjustment.

Why do variances happen?

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

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.
Your UI rate was updated in the middle of the quarter (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.
A Payroll was voided. 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. Reconciling this amount through a tax variance allows us to proactively resolve any tax balancing issues for your business.

Note: If Homebase did not conduct a tax variance calculation, you'd likely receive a notice from tax agencies indicating an over or under payment of your payroll taxes.

Do I have to do anything?

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%.

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.

Credit Reduction State Definition (As From the IRS)

A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame.

Note: For more information, see here.

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