Federal Unemployment Tax Rate Change 2011

From the IRS website:

“Before July 1, 2011, the FUTA tax rate is 6.2%. After June 30, 2011, the FUTA tax rate is scheduled to decrease to 6.0%. The tax applies to the first $7,000 you pay to each employee as wages during the year. The $7,000 is the federal wage base. Your state wage base may be different.”

This is just another change to figure into payroll tax reporting for 2011.  Most full time employees will have been paid the first $7,000 of their wages by July 1st, so most employers won’t see this savings until 2012.  This was a clever little tax cut….it encourages hiring new employees in the latter half of 2011.

NEW INFORMATION:  On February 14, 2011, the President proposed keeping the rate at 6.2%, ignoring the cut that was to have taken place on July 1, 2011, and changing the wage base up to $14,000 beginning January 1, 2014.  Stay tuned for updates.

AS OF MAY 9, 2011:

A proposal in the President’s FY 2012 budget would keep the 0.2% FUTA surtax in effect on a permanent basis. Another budget proposal would raise the FUTA wage base to $15,000 per worker paid annually in 2014, index the wage base to wage growth for subsequent years, and reduce the net federal unemployment insurance tax from 0.8% (after the proposed permanent extension of the FUTA surtax) to 0.38%. States with wage bases below $15,000 would need to conform to the new FUTA base, but would maintain the ability to set their own tax rates, as under current law.

AS OF MAY 12, 2011:

On the May 12 payroll industry conference call, IRS was asked about the surtax. Sherry Saucerman, IRS Tax Analyst, noted that IRS has no control over whether Congress enacts legislation to extend the surtax. She pointed out that the federal unemployment tax return (Form 940) is filed on an annual basis (due January 31 of each year). So it is possible that even if legislation is not enacted before July 1 to extend the surtax, it could be enacted prior to January 31 of next year, and be effective retroactively to July 1.

IRS was then asked how an employer would compute its upcoming quarterly FUTA tax deposits, which must be paid by all employers whose FUTA tax is more than $500 for the calendar year, if the legislation was to be applied retroactively. Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, replied that IRS would have some mechanism in place under which an employer would not be assessed deposit penalties if it computed its third and fourth quarter unemployment tax deposits at a 6.0% rate, and legislation was enacted after the fourth quarter of this year that retroactively reinstated the surtax.

 As of Thursday June 2nd:

Employers may need to track pre- and post 6-30-2011 FUTA taxable wages:  The 0.2% federal unemployment tax (FUTA) surtax is scheduled to expire on June 30. On the June 2 payroll industry conference call, Sherry Saucerman, IRS Tax Analyst, noted that employers will need to separately track FUTA taxable wages paid before July 1, and FUTA taxable wages paid after June 30, if legislation is not enacted to extend the surtax. Anita Bartels, Senior Program Analyst, IRS SB/SE Employment Tax Operations, said that the IRS will need to revise Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, if the surtax is not extended. She said that the revision would probably be handled in a similar fashion to the way that Form 941 for the 2011 tax year was revised to reflect the reduction in the employee Social Security tax rate from 6.2% to 4.2%. That is, an additional line would be added to Form 940 to compute FUTA taxable wages earned from July 1 to December 31 that would not take into account the surtax. The IRS is working on making this change just in case the surtax is not extended, but they noted that there is considerable speculation that the surtax will be extended. Bartels believed that Form 940 would not be revised to reflect this change if the surtax was reinstated anytime before the end of the year. She was less certain how the IRS would handle the federal unemployment tax computation if the surtax was to be reinstated after Dec. 31, 2011. On the last conference call, Shelley Dockstader, National Account Manager in IRS Electronic Tax Administration, said that employers will not be penalized for making unemployment tax deposits for the third and fourth quarters of 2011 that didn’t take into account the surtax, if the surtax was retroactively reinstated after the end of the fourth quarter.

 UPDATE JULY 1, 2011  – IT IS STILL A MAYBE

It’s official.  Today on July 1st, the 0.2% federal unemployment tax (FUTA) surtax is no longer in effect.  Congress has been unable to make up their minds about whether to reinstate the surtax and it could still happen before the calendar year 2011 is over.

So now what? As the IRS noted on its June 2 payroll industry conference call above, you need to separately track FUTA taxable wages paid before July 1, and FUTA taxable wages paid after June 30, since the FUTA tax rates are different during those two periods.

Employers whose FUTA tax is more than $500 for the calendar year need to make quarterly FUTA deposits. The next quarterly payment is due on July 31, but that payment is based on taxable wages earned through June 30, so it will be computed using the 6.2% FUTA tax rate.

The next quarterly payment is due on Oct. 31, 2011, and it may be computed using the 6.0% FUTA tax rate if legislation is not enacted to retroactively reinstate the FUTA surtax beginning July 1, 2011.

The IRS is working on revising Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, to take into account the elimination of the surtax. That return must be filed in January 2012.

Update November 30th, 2011:

It is definite; here’s the Form 940 for 2011, due January 31, 2012:  http://www.irs.gov/pub/irs-pdf/f940.pdf

Update December 29th, 2011

New this year on Form 940 is a surprise amount due on line 11 from the Schedule A for Form 940.   Schedule A is located here on the IRS website:  http://www.irs.gov/pub/irs-pdf/f940sa.pdf

Each state that has not paid back the Federal government unemployment insurance fund is listed on Schedule A with a “credit reduction” which effectively is a tax passed on to every employer in those states.  Wisconsin and 20 more states have just increased Federal unemployment taxes for business with employees in their states, on the Form 940. 

Wisconsin employers have to pay the Federal government an extra $21 per employee (.003 X $7,000) on the 2011 Form 940.   This extra payment is due January 31, 2012. 

Wisconsin previously billed every Wisconsin employer a $26.99 “assessment” per employee to help the State to pay just the $42.3 million on interest alone on these outstanding Federal loans, back on September 30, 2011.  The next “assessment” will be due in August 2012 for about $23.40 per employee.

So, both the Federal and State governments are taxing employers MORE to pay towards all of the unemployment compensation being collected by the unemployed.   Next year is scheduled to be worse.  The Federal Form 940 “credit reduction” will be $42 per employee in Wisconsin for 2012, payable January 31, 2013, and then in 2013 it will be $63 per employee in Wisconsin, payable on January 31, 2014, according to the memo I received from the Wisconsin Department of Workforce Development dated November 14, 2011.

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Estate and Gift Tax Changes in the 2010 Tax Relief Act

RIA Tax Research provided the explanation below, for us to send to our clients.   In a nutshell, you get your choice for 2010 decedents.   A hybrid version of the pre-2010 law was put back into place retroactively for 2010, if you want the step up in basis for the beneficiaries.  This will most likely work out well for smaller estates.  But do evaluate both choices carefully with your own facts and circumstances to see which is best for the estate and the beneficiaries overall.

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Overview of the new law. The 2010 Tax Relief Act provides temporary relief. Among other changes, it reduces estate, gift and generation-skipping transfer (GST) taxes for 2011 and 2012. It preserves estate tax repeal for 2010, but in a roundabout way: estates wanting zero estate tax for 2010 must elect that option, along with the less favorable modified carryover basis rules that were set to apply for 2010. Otherwise, by default, the estate tax is revived for 2010, with a $5 million exemption, a top tax rate of 35%, and a step-up in basis. Also, for estates of decedents dying after Dec. 31, 2010, a deceased spouse’s unused exemption may be shifted to the surviving spouse. However, these generous rules are temporary—much harsher rules are slated to return after 2012.

Lower rate and higher exemption for 2011 and 2012. For estates of individuals dying in 2009, the top estate tax rate was 45% and there was a $3.5 million exemption. The top rate was to rise to 55% for estates of individuals dying after 2010, and the exemption was to be $1 million. For 2011 and 2012, the 2010 Tax Relief Act reduces the top rate to 35%. It also increases the exemption to $5 million for 2011 with a further increase for inflation in 2012. But these changes are temporary. After 2012, the top rate will be 55%, and the exemption will be $1 million.

Special tax saving choice for 2010. The 2010 Tax Relief Act allows estates of decedents who died in 2010 to choose between (1) estate tax (based on a $5 million exemption and 35% top rate) and a step-up in basis, or (2) no estate tax and modified carryover basis. Basis is the yardstick for measuring income tax gain or loss when an asset is sold. With a step-up in basis, pre-death gain is eliminated because the basis in the heir’s hands is increased to the date of death value of the asset. On the other hand, with a modified carryover basis, an heir gets the decedent’s original basis, plus certain increases, which can be substantial. Even so, if the decedent had a relatively low basis and significant assets, some pre-death gain may be taxed when the heir sells the property. These concerns factor into the special choice for 2010. The executor should make whichever choice would produce the lowest combined estate and income taxes for the estate and its beneficiaries. This would depend, among other factors, on the decedent’s basis in the assets immediately before death and how soon the estate beneficiaries may sell the assets.

Gift tax changes. Years ago, the gift tax and the estate tax were unified—they shared a single exemption and were subject to the same rates. This was not the case in recent years. For example, in 2010, the top gift tax rate was 35% and the exemption was $1 million. For gifts made after Dec. 31, 2010, the gift tax and estate tax are reunified and an overall $5 million exemption applies.

GST tax changes. The GST tax is an additional tax on gifts and bequests to grandchildren when their parents are still alive. The 2010 Tax Relief Act lowers GST taxes for 2011 and 2012 by increasing the exemption amount from $1 million to $5 million (as indexed after 2011) and reducing the rate from 55% to 35%.

New portability feature. Under the 2010 Tax Relief Act, any exemption that remains unused as of the death of a spouse who dies after Dec. 31, 2010 and before Jan. 1, 2013 is generally available for use by the surviving spouse in addition to his or her own $5 million exemption for taxable transfers made during life or at death. Under prior law, the exemption of the first spouse to die would be lost if not used. This could happen where the spouse with resources below the exemption amount died before the richer spouse. One way to address that was to set up a trust for the poorer spouse. Now, the portability rule may make setting up a trust unnecessary in some cases. But there still may be other reasons to employ credit shelter trusts. For example, a credit shelter trust may protect appreciation occurring between the death of the first spouse and the death of the second spouse from being subject to estate tax. Such a trust also can protect against creditors. Plus, the transferred exemption may be lost if the surviving spouse remarries and is again widowed.

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Taxation without Representation

Just received this reminder from the Wisconsin Department of Revenue:

Sales or Use Tax Due on Snowmobiles or ATVs Registered in Wisconsin by Nonresidents – If a person who is not a resident of Wisconsin registers or titles or is required to register or title their snowmobile or ATV in Wisconsin in order to obtain a trail pass from the Wisconsin Department of Natural Resources, that person also owes the applicable Wisconsin sales or use tax on their purchase of that snowmobile or ATV. For more information see the article titled “Registration of Snowmobiles and ATV’s in Wisconsin by Nonresidents” at: http://www.revenue.wi.gov/taxpro/news/101220a.html.

Yes, if you want to get a snowmobile trail pass from the DNR, you first have to register your snowmobile here, which requires that you pay Wisconsin sales tax on the purchase price of your snowmobile.  Boats navigating Wisconsin waters also have the same requirement to be registered and sales taxes paid. 

Illinois has tollways for cars.  Wisconsin has the Wisconsin Department of Revenue for tourists.

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Standard Mileage Rates 2011 – Change on July 1, 2011

(*)Updated for http://www.irs.gov/pub/irs-drop/a-11-40.pdf

Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 51 cents per mile for business miles driven; beginning July 1= 55.5 cents
  • 19 cents per mile driven for medical or moving; to 23.5 cents July 1
  • 14 cents per mile driven in service of charitable organizations.

(*)The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011.

This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as originally set forth in Revenue Procedure 2010-51.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Beginning in 2011, a taxpayer may use the business standard mileage rate for vehicles used for hire, such as taxicabs. Also beginning in 2011, the standard mileage rates are announced in a separate notice, which also provides the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate and the maximum standard automobile cost for automobiles under a FAVR allowance. The IRS plans to discontinue publishing the standard mileage rate revenue procedure annually but will publish modifications as required. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

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