FUTA Surtax Scheduled to Expire June 30, 2011

The federal unemployment tax (FUTA) surtax is scheduled to expire June 30, 2011.  This will result in a FUTA tax rate decrease from 6.2% to 6.0% effective July 1, 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 federal government provides a 5.4% credit to companies that pay their state unemployment taxes on time, resulting in an effective federal unemployment tax of 0.8% for 1/1/11 - 6/30/11 and 0.6% for 7/1/11 - 12/31/11.

At this time it is uncertain whether the surtax will be allowed to expire or be extended.  Because of this uncertainty, we recommend that employers continue to accrue FUTA tax at a rate of 0.8% until it is time to make the third quarter FUTA deposit in October 2011.

If you have any questions regarding FUTA or other payroll tax matters, contact Jennifer Bearman, Tax Supervisor in Baden, Gage & Schroeder's tax department.