Potential FUTA rate change
Potential FUTA (Federal Unemployment) rate change effective July 1, 2011
Employers are currently required to pay a flat rate of 6.2% on the first $7,000.00 of each employee’s annual wages for FUTA. Employers receive a credit of 5.4% for paying state unemployment on time, reducing the 6.2% to .8% resulting in an maximum annual FUTA payment of $56.00 for each employee with annual earnings of at least $7,000.00 ($7,000.00 × .8% = $56.00).
The 6.2% FUTA rate includes a temporary .2% surcharge that was first added in the 1970’s. This temporary surcharge has been extended many times over the past three decades. The last extension, set to expire effective 7/1/2011, was included in The Worker, Homeownership and Business Assistance Act of 2009 signed into law on November 6, 2009. If congress does not extend this surcharge before June 30, 2011 the FUTA rate will be reduced from 6.2% to 6.0% effective July 1, 2011. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.
At the present time it is unknown whether this surcharge will be extended before June 30, 2011. In anticipation that this surcharge is not extended, the IRS is currently working to revise Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) to accommodate the two different FUTA rates for calendar year 2011.
It is possible that this surcharge will be extended at a later date in 2011 retroactive back to July 1, 2011. If the extension is passed after the third quarter payments are made, the IRS has stated that there will not be any penalties to employers for any underpayments because of this retroactive extension.
Our office will keep you posted of developments. If you have any questions about the Federal Unemployment rate or other payroll tax questions, please contact our office.