Wednesday, June 8, 2011

Expiration of FUTA Surtax Looms

The 0.2-percent federal unemployment (FUTA) surtax is scheduled to expire after June 30, 2011. If the surtax expires, the FUTA tax rate would drop to 6.0 percent for the remaining six months of 2011, absent congressional action.


The FUTA tax funds unemployment insurance in all the states. It pays one-half of the cost of extended unemployment benefits, during periods of high unemployment, and provides for a fund from which states may borrow, if necessary, to pay unemployment benefits.

The FUTA tax rate is currently 6.2 percent and is made up of two components: a permanent tax rate of 6.0 percent and a temporary surtax of 0.2 percent. The FUTA taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax on a timely basis receive an offset credit of up to 5.4 percent.


The temporary 0.2-percent surtax was most recently extended by the Worker, Homeownership and Business Assistance Act of 2009 (2009 Worker Act) (P.L. 111-92). The 2009 Worker Act extended the surtax through 2010 and the first six months of 2011.

President Obama has proposed to make the FUTA surtax permanent. Congress has not acted on the president's proposal nor has Congress taken up legislation to extend the FUTA surtax beyond June 30, 2011.

Form 940

Employers pay FUTA annually by filing Form 940, Employer's Annual Federal Unemployment Tax Return. In the Instructions for Form 940, the IRS notes that the FUTA tax rate is scheduled to decrease from 6.2 percent to 6.0 percent beginning July 1, 2011. The Service advises taxpayers to visit its website ( for updated information. CCH asked the IRS if it intends to adjust the 2011 Form 940 to reflect two FUTA rates in 2011 if the surtax expires but did not receive a response by press time.

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