The Federal Unemployment Tax Act (FUTA) is imposed by §3301 of the Internal Revenue Code of 1986 (IRC). The statutory rate of 6.2% was set to revert at the end of 2008 to the original rate of 6.0%. Under §404 of the Emergency Economic Stabilization Act (Public Law 110-343 or the “bailout bill”), the 0.2% surtax has now been extended to the end of 2009. The surtax was originally enacted in 1976 to fund additional payments made through a program that extended unemployment benefits. The loans used to fund the program were retired in 1987, but the surtax continues.
Since IRC §3302 allows most employers a credit against 90% of the tax (not including the surtax) for payments into state unemployment funds, the effective FUTA rate is generally 0.8%. This is calculated by taking the statutory rate of 6.2% and reducing it by the credit of 5.4% (6.0% rate without the surtax times 90%). Employers are not allowed a credit against the surtax. For employees who earn at least the 2009 wage base of $7,000, the FUTA tax liability should be $56. Without the surtax, the tax would have been $42. Contact Vision Payroll if you have any question on FUTA taxes and rates.