Possible Change in the FUTA Payroll Tax

Beginning July 1, there may be a change in your FUTA payroll tax rate.

The FUTA tax is 6.2%, although the IRS allows a credit of 5.4% if you pay your state unemployment taxes on time. This makes for a net tax rate of 0.8%. FUTA applies to the first $7,000 of wages per employee. There has been a “temporary” surcharge of 0.2% since the 1970s, and that 0.2% is set to expire June 30, 2011. If the surcharge expires, the 5.4% state credit will nonetheless remain the same, making the net cost to the employer 0.6%.

Please be aware that a proposal in the President’s 2012 budget would make the 0.2% surcharge permanent. There is an alternate budget proposal that would increase the FUTA wage base from $7,000 to $15,000 per employee.

Should the FUTA surcharge expire, it will add to an already confusing year for payroll taxes. Remember that for 2011 employers are paying Social Security taxes of 6.2% while employees are paying 4.2%.

We at Kruse and Crawford are monitoring this issue and will available to answer any questions as June 30, 2011 approaches.