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Employers need to separately track taxable wages

Employers need to separately track taxable wages

The ‘temporary’ (since 1976) federal unemployment tax (FUTA) surtax expired on June 30, 2011. This surtax was 0.2% on top of the permanent 6% tax for the first $7,000 of gross wages paid annually to each employee. Here’s what you need to do with regard to the change that took effect July 1:

–         If you haven’t already, begin paying only 6% unemployment tax (before consideration of state unemployment tax credits) on the first $7,000 of an employee’s wages.

–         Separately track the FUTA taxable wages paid prior to July 1 and those paid after June 30, 2011.

–         If your organization’s FUTA tax is more than $500 for the year and you make quarterly payments, the amount due on August 1 will be based on wages paid through June 30, so the 6.2% rate will apply. For the payment due on October 31, the amount due will be at the 6% rate.

–         Be aware that there is a possibility that Congress will retroactively reinstate the surtax. If that happens, the IRS has stated that employers won’t be assessed penalties for the difference in the 6% and 6.2% deposits.

A revised Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is in process to reflect elimination of the 0.2% surtax. The return will be due in January 2012.

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