A federal unemployment surtax expired last week after 35 years, providing business owners some modest relief in the face of rising state unemployment taxes. It is expected to save businesses about $14 per employee per year, for an overall savings of about $1.4 billion per year.

Dave Phelps
David L. Phelps, CPA

The 0.2% federal unemployment tax (FUTA) surtax expired July 1. Employers are still responsible for the 6% permanent FUTA on the first $7,000 paid annually to each employee. For the calendar year 2011, employers must separately track FUTA taxable wages paid before July 1 and those paid after, since the tax rates will be different for each period – 6.2% from January 1 through June 30, 6.0% from July 1 through December 31.

For employers who are required to make quarterly FUTA deposits, the payment due July 31 will be based on wages earned through June 30, so it must be calculated using the 6.2% rate. The payment due October 31 will be calculated using the 6.0% rate, barring further legislation.

The FUTA surtax was enacted in 1976 as a temporary measure to provide unemployment benefits in the wake of a recession, and it was extended eight times. It is possible Congress will again extend the measure, reinstating it retroactive to July 1 – but Republican leaders have been adamant about reducing taxes and almost certainly would oppose any attempt to restore the surtax.

“The death of any tax on jobs – no matter how big or small – is a historic moment and one to be celebrated,” said Dave Camp, R-Michigan, the Chairman of the Ways and Means Committee. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes – once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”

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