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Cope with higher FUTA tax in 2013

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. My small business just had to pay double the FUTA tax I normally pay. Did I miss a tax law change? D.J., Parsippany, N.J.

A. Not exactly, but the FUTA tax rates in many states have gone up. The 6.0% required tax employers must pay under the Federal Unemployment Tax Act (FUTA) is usually offset by a 5.4% credit for an effective rate of only 0.6%. But the credit is reduced for employers in states that haven’t repaid outstanding loans from the federal government.

As a result, employers in more than half the states must pay higher FUTA taxes in 2013 (see "Higher FUTA taxes on tap" for the list of affected states).

Tip: At least the 0.2% FUTA surtax that expired in 2011 hasn’t been restored.

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