What You Need to Know About the FUTA Surtax Being Set to Expire

Futa Surtax Set to Expire, Adding Confusion for Payroll Managers

payroll_confusionBrace yourself for some confusing news regarding the FUTA (federal unemployment tax): the 0.2% FUTA surtax is due to expire today, June 30, 2011.

Currently, American employers pay 6.0% gross FUTA tax plus a 0.2% surtax, minus a credit for 5.4%, for a net of 0.8%. Now that the surtax expired, the net effective rate for July through the rest of the year will be 0.6%.

In effect since 1976, Congress extended the surtax once already, from January 1, 2010, to June 30, 2011. It remains to be seen whether the government will take any action this time. They could reinstate the 0.2% surtax, reinstate the surtax but let it expire at a later date, or allow the surtax to expire completely. It could show up as part of a jobs bill, or maybe on “Dancing with the Stars.” Who knows?

Meanwhile, what’s an employer to do? Here’s the takeaway: You can update to the 0.6% tax rate and track separately the FUTA wages paid before and after the June 30 deadline. Or, you can keep the tax rate at 0.8%, just in case Congress retroactively decides to reinstate the 0.2% surtax. If you use an outside payroll provider, check with them to see how they are handling this change.

If the government takes no action to reinstate the surtax, expect an updated 940 form for 2011 with an additional line for reporting the payroll wages not subject to the surtax.

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