At Deluxe Payroll our challenge is to stay on top of payroll, gross to net for employers we service. With the many tax law changes over the past year we have exceeded our client expectations! Deluxe Payroll has risen to the challenge of successfully implementing these changes beginning with The American Recovery/Reimbursement Act of 2010 (ARRA), the new 4.2% Social Security tax for employee Social Security withholding that started on January 1, 2011 and now we have the FUTA tax change in July!
The FUTA rate is currently 6.2% on the first $7000 of an employee’s wages and is sent directly to the IRS as the wage earner earns the wages during a calendar year. This rate has remained constant for years. However, effective July 1, 2011 it will lower to 6.0% on the first $7000 of wages paid to an employee. Successor employers may be able to include wages paid by the previous employer toward the $7000. The fact that they are changing this mid-year is going to cause headaches for payroll software providers. Figuring out the difference in the annual FUTA tax return denoting wage/taxes for January through June and then a different set July thru December is the icing on the cake.
What is the FUTA Tax Rate?
FUTA taxes are deposited quarterly unless the liability for any quarter is less than $500, in which case the taxes may be paid annually. Wages paid, offsets and amounts due are reported on Form 940.
Most employers are subject to FUTA (Federal Unemployment Tax Act) taxes. Specifically, one of the following three tests must be met:
•An employer must have had one or more employees for part of a day in twenty or more weeks or paid wages of $1500 or more in any calendar quarter.
•At least $1000 in wages were paid to employees working in a household or domestic capacity.
•Wages of at least $20,000 were paid to farm workers in any calendar quarter, or at least ten farm workers were employed during any day for twenty weeks.
Revenue from FUTA taxes is sometimes used to help states pay their unemployment obligations to workers when the state unemployment fund has become insolvent. The money is provided as a loan to the state and must be repaid, either through direct payment or an increase in the FUTA rate for that state.
For most employers, the exceptions being Indian tribes, non-profit organizations and government entities, state unemployment taxes are deductible against FUTA taxes, effectively lowering the FUTA rate that the employer pays by as much as 5.4%. This lowers the FUTA tax rate to 0.8% for some employers, and as of July 1, 2011 will lower it to 0.6%. State unemployment taxes must have been paid in full, on time, and on the same wages for an employer to take the offset of state unemployment wages against their FUTA taxes.
Deluxe Payroll Is Always Ready!
Deluxe Payroll is already prepared for the FUTA Tax rate change. We were able to make all these changes as the laws were changed, although difficult! Kudos to Deluxe Payroll and all the other payroll service providers who were able to swiftly accommodate the changes necessary in order to correctly tax an employee’s paycheck along with correctly stating employer liabilities due and payable. If you would like to discuss this FUTA Tax rate change or have any other questions on our services, please feel free to call Deluxe Payroll at 1-800-729-5910.