Category Archives: Futa Tax

New FUTA Tax Rate for 2011

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The Federal Unemployment Tax (FUTA) Act surcharge of 0.2% was expired on June 30, 2011. This means that the FUTA rate for employers decreased from 6.2% to 6.0% starting on July 1, 2011.

The IRS is currently working to revise Form 940, Employer’s Annual Federal Unemployment Tax Return, to accommodate the two different rates and the form will be available before the Jan. 31, 2012, due date.

The law was passed in 1976, and Congress has extended it several times since. Unemployment benefits are not tied to the surcharge, so the expiration of the surcharge will not affect current or future unemployment benefits.

For 2012, the effective tax rate would be 6.0% – 5.4% (maximum credit) = 0.6%.  0.6%*$7,000 = $42 per employee per year.  On your 2012 940 tax return, make sure to use the 6.0% rate instead of the 8% rate.

Futa Tax Form

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2011 FUTA Tax Form is due on January 31, 2012.  Make sure to postmark by this end to prevent any IRS penalties from accessing on your account.

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return. This form is due the last day of the first calendar month after the calendar year ends. Use it to report the FUTA tax on wages you paid.

Click here to download the FUTA Tax form 940 from the IRS website.

Unemployment Insurance UI

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This program is a state-federal partnership, financed by two different employer taxes. First, state employment security agencies (SESA’s) collect quarterly employer contributions (taxes) in order to pay unemployment benefits to eligible, unemployed workers. Secondly, the federal government funds the administrative costs of the employment security programs in each state through a quarterly federal unemployment tax (FUTA).

SUTA Dumping

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Effective January 1, 2006, if an individual or entity transfers all or a portion of its trade or business and there is any substantial common ownership, management or control of the transferor and transferee, the experience rating records of the transferor and transferee shall be combined for the purpose of determining their contribution rate. However, if the transferor or transferee had a contribution rate applicable to it for the calendar year in which the transfer occurred, it shall continue with that contribution rate for the remainder of the calendar year. If the transferee had no contribution rate applicable to it for the calendar year in which the transfer occurred, the contribution rate of the transferee shall be the same as the contribution rate of the transferor for the remainder of the calendar year.

Additionally, if an individual or entity that is not an employer under the Act acquires the trade or business of any employing unit, the experience rating record of the acquired business shall not be transferred to the individual or entity if the Director finds that the individual or entity acquired the business solely or primarily to obtain a lower contribution rate. An employer that knowingly pays or attempts to pay contributions at a rate that is inconsistent with the SUTA dumping law is subject to substantial civil penalties and criminal liability, as is an individual or entity that knowingly advises another to pay or attempt to pay contributions at a rate inconsistent with the SUTA dumping law.