The FUTA tax rate is currently 6.2% and is made up of two components: a permanent tax rate of 6.0% and a temporary surtax of 0.2%. 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%. This results in a Net FUTA rate of 0.8% through June 30, 2011 and 0.6% from July 1, 2011.
The Federal Unemployment Tax Act, or FUTA, came into existence in 1939 to guarantee financing for a national employment security system. The idea was for employers to pay the costs of administering the unemployment compensation and national job placement system. In return, employers would receive assistance in recruiting new workers and the unemployed would be able to find jobs more quickly.
The temporary surtax of 0.2% was added in 1976, and most recently was extended by the Worker, Homeownership and Business Assistance Act of 2009 (P.L. 111-92). The 2009 Workers Act extended the surtax through 2010 and the first six months of 2011. This is approximately the seventh such extension of the surtax on record. The surtax accounts for roughly 25% of the FUTA tax collections or roughly $2 billion in revenue annually.
The FUTA surtax is widely expected to be extended again, but other economic issues are currently being addressed by Congress and may delay consideration until later this year. Congress could retroactively reinstate the surtax, effective July 1, which may result in additional FUTA tax being due at year end.
PCS will continue to monitor this and other tax related developments.
PCS Tax Team
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