FUTA and SUTA Increases

The IRS announced a reduction in the 2010 FUTA (Federal Unemployment Tax Act) credit for three states: Michigan, South Carolina, and Indiana. This is a result of unpaid federal loans by these states. The Social Security Act requires a reduction in the FUTA tax credit when a state has outstanding federal loans for two consecutive Januaries. This reduction means an overall increase in the FUTA taxes for these states.

Employers are required to pay a flat rate of 6.2% on the first $7,000 of each employee's annual wages. Employers can receive a credit of 5.4% for paying state unemployment on time. The reduction in the FUTA tax credit is .3% for the first year and an additional .3% for each succeeding year until the loan is repaid.

Indiana: An additional $21 per employee ($7,000 x .3% = $21) the first year.

The FUTA credit reduction will become elective retroactive to January 1, 2010 and will be due on federal IRS Form 940 by January 31, 2011.

Also note that the SUTA tax is based on the first $9,500 in wages beginning January 1, 2011.

With questions or for additional information, please contact a tax specialist from Simons Bitzer at (317) 782-3070 or visit us on the web at www.SimonsBitzer.com.