How will the impending FUTA tax rate change affect you?
Jun 24, 2011
FUTA surtax expiring soon
The 0.2% federal unemployment (FUTA) surtax is scheduled to expire after June 30, 2011. If you timely paid your state unemployment taxes, your federal unemployment rate typically will decrease from 0.8% to 0.6%. If the surtax expires, the FUTA tax rate would drop for the remaining six months of 2011, absent congressional action. Your software provider should update your system to account for the decrease in the FUTA tax.
What is the FUTA tax?
The FUTA (federal unemployment) tax funds unemployment insurance in the United States. It pays one-half of the cost of extended unemployment benefits during periods of high unemployment and provides for a fund from which states may borrow, if necessary, to pay unemployment benefits.
The FUTA taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers pay FUTA annually by filing Form 940, Employer's Annual Federal Unemployment Tax Return. In the Instructions for Form 940, the IRS notes that the FUTA tax rate is scheduled to decrease by 0.2% beginning July 1, 2011.
The temporary 0.2% surtax was most recently extended by the Worker, Homeownership and Business Assistance Act of 2009 (2009 Worker Act) (PubLNo 111-92) through 2010 and the first six months of 2011. President Obama has proposed to make the surtax permanent. Congress, however, has not acted on the president's proposal nor has it taken up legislation to extend the surtax beyond June 30, 2011.
The IRS advises taxpayers to visit its website for updated information.
