IRS Updates Form 940 for Mid-year Expiration
of FUTA Surtax

 
The IRS has updated Form 940 to reflect the mid-year 2011 expiration of the 0.2 percent FUTA surtax. FUTA taxes for 2011 will be calculated using two rates, the IRS explained.

Mid-year Expiration
FUTA authorizes the IRS to collect a tax used to fund state workforce agencies. FUTA covers the costs of administering the unemployment insurance and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

Employers pay FUTA on the first $7,000 of each employee's annual wages.

Since the 0.2% FUTA surtax expired mid-year 2011, FUTA taxes for calendar year 2011 are calculated using two rates: 6.2% of taxable wages paid through June

30, 2011; and 6.0% of taxable wages paid after June 30, 2011.

Employers file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, and accompanying schedules, to pay their FUTA liability. The IRS has released an updated version of Form 940 to reflect the mid-year expiration of the FUTA surtax.

Form 940 for 2011 must be filed by January 31, 2012. The due date is extended to February 10, 2012 for employers that timely deposited all of their FUTA taxes.

Credit Reduction States
Employers that pay their state unemployment tax timely and in full receive a 5.4 percent credit. However, the credit is reduced when a state has outstanding federal loans for two consecutive Januarys. The reduction is 0.3 percent for the first year and an additional 0.3 percent for each succeeding year until the loan is repaid. A state that has not repaid money it has borrowed from the federal government is called a credit reduction state.

Form 940 for 2011 identifies the 0.3 percent credit reduction states, which are Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, North Carolina, New Jersey, Nevada, New York, Ohio, Pennsylvania, Rhode Island, Virginia, and Wisconsin (the U.S. Virgin Islands is also a 0.3 percent credit reduction jurisdiction). Indiana is a 0.6 percent credit reduction state and Michigan is a 0.9 credit reduction state.

Newsletter Summary Page »

To ensure compliance with requirements imposed by the IRS, please note, any advice contained in this publication was not intended, or written, to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This publication is distributed with the understanding that the publisher and distributor are not providing legal, accounting or other professional advice and assume no liability whatsoever in conjunction with the information contained within this publication.