FUTA Tax Rate Decreases from 6.2% to 6.0%

July 11, 2011 by wnvcpa

Effective July 1, 2011, the 0.2% surtax on Federal Unemployment Tax (FUTA) is no longer in effect.  The tax rate has been reduced from 6.2% to 6.0% and applies to the first $7,000 of wages paid to each employee during the year. Generally, a credit for amounts paid into state unemployment funds can be applied against the FUTA tax.

What this means for employers

Employers are encouraged to separately track their FUTA tax calculations. The first group should be calculated using the 6.2% tax rate for the period covering January 1, 2011 through June 30, 2011. The second group should be calculated using the 6.0% tax rate for the period covering July 1, 2011 through December 31, 2011.

What employers can do to maximize their credit

The maximum allowable credit is 5.4% of FUTA taxable wages. This translates into a 0.6% total FUTA tax rate after June 30, 2011 (6.0% – 5.4% = 0.6%). Employers who pay their state unemployment taxes (SUTA) in full, on time, and on all the same wages subject to the FUTA tax will be eligible for the maximum credit, as long as their state is not a credit reduction state.  See IRS Publication 15 for more information.

How this will affect the 940 tax return

The IRS will revise Form 940, Employer’s Annual Federal Unemployment Tax Return, to handle the FUTA rate change for the calendar year 2011.

If you have any questions about how this rate decrease will affect you, feel free to contact us at Wallace Neumann & Verville, LLP .

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