Vernoia, Enterline + Brewer, CPA LLC

The Federal Unemployment Tax Act (FUTA) surtax expired effective July 1, 2011. The 0.2 percent surtax, originally enacted in 1976, had been last extended by the Worker, Homeownership and Business Assistance Act of 2009 (2009 Worker Act) through 2010 and the first six months of 2011. It has been extended for one or two year increments since its 1976 enactment.

Prior to July 1, 2011, FUTA was made up of the permanent 6.0 percent rate and the 0.2 percent surtax for a combined tax rate of 6.2 percent. Employers in states with programs approved by the federal government and with no delinquent federal loans may credit 5.4 percentage points against the 6.2 percent tax rate.

The extension of the FUTA surtax under the 2009 Worker Act expired after June 30, 2011. As a result of the expiration of the surtax, the FUTA tax rate falls to 6 percent before any state unemployment tax credits are taken into account. However, since the FUTA tax is imposed on employers for annual wage amounts paid to employees only up to the $7,000 FUTA wage base, employers with a stable workforce likely will have already capped out on the maximum $7,000 wage base on each employee before the July 1, 2011 expiration.

Comment.  President Obama has called on Congress to make the surtax permanent. GOP leaders in the House have indicated they are not likely to bring legislation to the floor to make the surtax permanent. However, a retroactive extension of the FUTA surtax to July 1, 2011 could be part of any number of bills that may clear Congress before year end.

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