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FUTA Surtax Set to Expire June 30

July 1, 2011 at 9:44 pm

FUTA Surtax Set to Expire June 30

The 0.2% Federal Unemployment Tax Act (FUTA) surtax is set to expire on June 30, 2011. The permanent gross FUTA tax rate is 6.0%. The 0.2% surtax was added in 1976 and has been in effect since then. The last time it was extended was from January 1, 2010 to June 30, 2011, under the Worker, Homeownership, and Business Assistance Act of 2009. Before expiration of the 0.2% surtax, the net FUTA tax employers pay after taking credit for up to 5.4% of state unemployment taxes paid is 0.8%. After expiration, the net FUTA rate will be reduced to 0.6% on FUTA taxable wages paid beginning July 1, 2011 (0.8% – 0.2% = 0.6%).

At this time, we know of no plans in the U.S. Congress to push legislation through to extend the surtax before it expires. However, it is possible the surtax will be extended retroactively as part of legislation to increase the federal government’s debt ceiling before it is reached on August 2, 2011, as part of comprehensive unemployment insurance reform efforts, or as part of a tax extender bill later this year.

With the surtax expiring, USI Payroll will separately track FUTA taxable wages paid before July 1, and FUTA taxable wages paid after June 30. It is expected that Form 940 for 2011 would be revised to require separate reporting of wages subject to the surtax and those not subject to the surtax. With no surtax in effect for the third quarter of 2011, employers may determine their FUTA tax liability and deposit requirement for the quarter based on a net FUTA rate of 0.6%. Because of the possibility of a retroactive extension, however, employers may consider it prudent to continue to accrue FUTA tax at a rate of 0.8% until the third quarter FUTA deposit is due on October 31.

Categories: Payroll Administration.