Starting on July 1, 2011, employers may enjoy a reduction in their federal unemployment tax (FUTA) obligations. On June 30, 2011, the 0.2% federal unemployment tax (FUTA) surtax expired, resulting in a lower FUTA tax rate of 6.0% effective July 1, 2011.

FUTA Background

The FUTA is an employment tax imposed on employers used to fund the federal unemployment benefit program. Employers must pay the tax on an employee's annual wages up to the taxable wage base ($7,000 for 2011). The 0.2% surtax portion of the FUTA has been in effect since 1976 when it was first enacted by Congress as a temporary addition to the FUTA but has not been re-extended by legislation. Beginning on July 1, 2011, the FUTA tax rate is 6.0%.

What This Means For Employers

Employers must separately track FUTA taxable wages earned before July 1, 2011, and FUTA taxable wages after June 30, 2011 to account for the two different FUTA rates for those two periods. For employers who have more than $500 in FUTA for the calendar year, quarterly FUTA deposits need to be made and the next quarterly payment is due on August 1, 2011. However, that quarterly payment is based on taxable wages earned through June 30, 2011 and therefore will be calculated using the prior 6.2% FUTA tax rate. The quarterly payment that is due on October 31, 2011 will be calculated using the new effective 6.0% FUTA tax rate. Although there are no talks of Congress retroactively reinstating the surtax, it is possible that future legislation may be enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

The Internal Revenue Service is working on revisions to Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, to take into account the elimination of the surtax. That return must be filed in January 2012.