Compliance Central

Federal law requires a reduction in the FUTA tax credit when a state has outstanding federal loans for two years — three states are affected in 2010.  Employers in Indiana, Michigan and South Carolina will see an increase in their annual federal unemployment taxes for 2010, due January 31, 2011. 

Indiana and South Carolina

For Indiana and South Carolina, the 0.3 percent FUTA credit reduction for calendar year 2010 puts the FUTA tax rate at 1.1% (up from 0.8%).  This results in an additional $21 for each employee the first year that loans are not repaid and an additional $21 each succeeding year that the state’s federal loans remain unpaid.

In South Carolina, employers also are subject to an interest surcharge, beginning January 1, 2011, to cover the costs associated with outstanding loans from the federal government. The state “has borrowed nearly $900 million from the federal government since 2008 to pay state unemployment benefits”, said the Department of Employment and Workforce.

Michigan

Michigan has federal loans outstanding for the second consecutive year.  The reduction in the FUTA tax credit was 0.3% for the first year (2009), and will be an additional 0.3% for 2010, making the FUTA tax rate 1.4% for 2010.    

Michigan employers will pay an additional $42 per employee for FUTA taxes due Jan. 31, 2011, bringing the total tax to $98 per employee.  “An additional $21 will be added for each succeeding year that the state’s federal loans remain unpaid”, the Michigan Unemployment Insurance Agency has said.

Several states have announced their taxable wage base for the 2011 tax year.  Thirteen states are increasing their taxable wage base and three states are decreasing their taxable wage base.  

The following states will be increasing their taxable wage base in 2011:

• Indiana ($9,500, previously $7,000);
• Iowa ($24,700, previously $24,500);
• Mississippi ($14,000, previously $7,000);
• Montana ($26,300, previously $26,000);
• New Hampshire ($12,000, previously $10,000);
• New Mexico ($21,900, previously $20,800);
• North Dakota ($25,500, previously $24,700);
• Oklahoma ($18,600, previously $14,900);
• South Carolina ($10,000, previously $7,000);
• South Dakota ($11,000, previously $10,000);
• Vermont ($13,000, previously $10,000);
• Washington ($37,300, previously $36,800); and
• Wisconsin ($13,000, previously $12,000).

The following states will be decreasing their taxable wage base in 2011:

• Nevada ($26,600, previously $27,000);
• New Jersey ($29,600, previously $29,700); and
• Wyoming ($22,300, previously $22,800).

The following states have yet to announce their taxable wage bases for 2011:

Alaska ($34,100 in 2010), Hawaii ($34,900 in 2010), Idaho ($33,300 in 2010), Illinois ($12,520 in 2010), Oregon ($32,100 in 2010), Utah ($28,300 in 2010), Virgin Islands ($22,200 in 2010).

The following states are not expected to change their wage base in 2011:

Alabama ($8,000), Arizona ($7,000), Arkansas ($12,000), California ($7,000), Colorado ($10,000), Connecticut ($15,000), Delaware ($10,500), District of Columbia ($9,000), Florida ($7,000), Georgia ($8,500), Kansas ($8,000), Kentucky ($8,000), Louisiana ($7,700), Maine ($12,000), Maryland ($8,500), Massachusetts ($14,000), Michigan ($9,000), Minnesota ($27,000), Missouri ($13,000), Nebraska ($9,000), New York ($8,500), Ohio ($9,000), North Carolina ($19,700 in 2010), Pennsylvania ($8,000), Puerto Rico ($7,000), Rhode Island ($19,000), Tennessee ($9,000), Texas ($9,000), Virginia ($8,000), and West Virginia ($12,000).

Visit the American Payroll Association for more information.

The Internal Revenue Service announced cost of living adjustments affecting dollar limitations for qualified retirement plan items for tax year 2011.  In the instances where no cost of living adjustments were made, the limits remain unchanged.  Otherwise, changes are very small.  Full details can be found in IR-2010-208, but some highlights include:

• The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
• The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.

Qualified Retirement Plan Limits (2011 vs. 2010)