Payroll departments need to be aware that the administration’s budget proposal for 2012 includes an increase in the Federal Unemployment Tax. The proposed budget would more than double the taxable wage cap from the current $7,000 to $15,000 by 2014 thus increasing the amount Federal unemployment tax collected. This increase is to help offset the shortfall in funds collected to support the unemployment insurance system.
Due to increased demand, many States are realizing significant shortfalls and have been raising payroll unemployment tax rates as well as wage limits. The budget proposes a moratorium on the interest payment States are paying to the Feds for funds they have borrowed to shore up State trust funds. It also proposes a suspension of the FUTA tax credit States utilize. The idea is this will help States keep rates lower than would normally be required to meet these obligations. This in turn will mean that States do not have to pass on these payroll costs to businesses, thus ostensibly improving the employment environment.
The 2012 budget also proposes a restructuring of the Federal wage reporting system requiring employers to submit quarterly wage reports to the Social Security Administration along with annual reports. Currently payroll departments just file an annual wage report to the SSA. The administration suggests this plan would enhance management of Social Security funds and administration of SSA programs.
This change in Social Security tax reporting has been proposed in budgets for at least the past 5 years and continues to meet legislative resistance.