Previously, FUTA-covered employers were assessed a tax of 6.2% on the first $7,000 of wages paid to each worker during a calendar year. As of July 1, 2011, the FUTA tax rate was scheduled to decrease to 6.0%. This rate, however, is not necessarily the rate that an employer pays.
Normally, employers can take a credit against their FUTA tax for amounts paid into state unemployment funds. The credit may be as much as 5.4% of FUTA taxable wages. If an employer is entitled to the maximum credit the FUTA tax rate after the credit becomes 0.8% (0.6% after June 30, 2011).
The maximum credit applies if:
The employer paid their state unemployment taxes in full, on time, and on all the same wages as are subject to FUTA tax, and
The employer’s state is not determined to be a credit reduction state (it has not repaid the federal government the borrowed funds it borrowed). For 2010, Indiana, Michigan, and South Carolina were credit reduction states. Currently, it is too early to know which states will be credit reduction states in 2011.
Thanks to PriceKubecka, PLLC for the great information: http://www.pricekubecka.com/a-tax-cut-for-business-futa/.
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