by Melissa Merrick and Larry Brodnik, CPA | Team Members of the Tax Services Group
There are two major changes that will be occurring in 2011 regarding FUTA (Federal Unemployment Tax Act) and SUTA (State Unemployment Tax Act): (1) FUTA rate for Indiana companies will increase from .8% to 1.1%, and (2) SUTA wage base will increase from $7,000 to $9.500.
Changes to FUTA
Federal unemployment insurance taxes are 6.2% on the first $7,000 of each employee’s wages (paid by the employer). However, a tax credit of 5.4% is provided by the federal government for companies that pay their state taxes on time. The 5.4% credit results in an effective FUTA rate of .8% of an employee’s first $7,000 of wages, resulting in $56 per employee per year.
The above stated rates and amounts are the typical FUTA that would be owed by a company; however, if a state has received a trust fund advance and not repaid such advance within two years, the 5.4% federal tax credit will be reduced to 5.1%. This reduction results in a 1.1% FUTA effective rate on an employee’s first $7,000 of wages. Indiana has such an outstanding advance of $1.9 billion; therefore, beginning in January 2011, Indiana companies will see their FUTA effective rates increase to 1.1%, resulting in $77 in FUTA per employee per year (or a maximum $21 additional expense per employee). This rate increase will be used toward repayment of the state’s trust fund advance until the advance has been paid in full.
In future years, if the trust fund advance is not paid in full, the tax credit will be reduced by an additional .3% per year. Therefore, if the advance is still outstanding in 2012 and 2013, the FUTA rate would be 1.4% and 1.7%, respectively (and so on of additional .3% if continues into future years beyond 2013, to maximum of 6.2% rate).
Changes to SUTA
State unemployment insurance taxes are .7%-9.5% (as determined by the state) on the first $7,000 of each employee’s wages (paid by the employer). New employers pay SUTA of 2.5%, except for new government employers that pay 1.0%. However, in 2011, the $7,000 wage base will increase to $9,500 per employee.
Please give Melissa a call at 317.260.4469 if you would like more information.