Employers may have noticed that the instructions in your Employers Tax Guide (Publication 15) for computing FUTA tax reflect a .2% decrease after June 30, 2011. This tax decrease is related to a FUTA payroll tax surcharge, added back in 1977, that expired June 30, 2011. Unless Congress acts to extend this surcharge, the gross FUTA tax rate is reduced July 1, 2011 from 6.2% to 6.0% on the first $7,000 you pay to each employee as wages during the year.
Employers currently receive a credit of 5.4% against their FUTA tax rate for timely payments of their state unemployment tax. Therefore, the adjusted FUTA tax rate after the maximum credit is applied is .8%. That rate will be reduced to .6% without an extension from Congress. However, even if the surtax is extended at a later date, it could be made retroactive to July 1, 2011 so that the rate remains the same for the entire calendar year.
Although there is currently talk about an extender bill, the IRS is working to accommodate the two different tax rates for 2011. The IRS has also stated that if a retroactive extension of the surcharge is passed after the third quarter tax deposits are made, there will be no penalties assessed to employers for underpayments.
Note for Michigan Employers: Michigan employers must further adjust their FUTA tax liability because of outstanding federal loans. Since 2009, the credit has been reduced by .3% each year. If Congress does not extend the surcharge, Michigan employers will be paying a FUTA tax of 1.5%.
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