Absent congressional action, employers will face a tax dilemma beginning July 1, 2011. The “temporary” 0.2 percent federal unemployment tax (FUTA) surtax is scheduled to expire June 30, 2011.

The surtax is part of the 6.2 percent gross unemployment tax rate charged to employers on the first $7,000 of wages paid annually to each employee. The gross rate represents a “permanent” tax rate of 6.0 percent and a “temporary” surtax of 0.2 percent. The actual rate that an employer pays is reduced by a credit for state unemployment taxes.

The surtax has been “temporarily” in effect for 35 years. So no one really expects it will be allowed to expire. However, it is unclear whether Congress will take action before the scheduled expiration date. One likely scenario is that the surtax will expire on June 30 and that Congress will act later to reinstate the surtax retroactive to July 1.

Such a retroactive action will place employers in a difficult situation when calculating required unemployment tax deposits after June 30. Employers with an annual unemployment tax obligation exceeding $500 must deposit their taxes quarterly.

The IRS has informally indicated that it will waive penalties on employers that calculate the tax at a 6.0 percent rate after July 1 if Congress then retroactively restores the surtax.

While no bills to extend the surtax are presently under congressional consideration, the president’s 2012 budget proposal would keep the 0.2 percent surtax and make it permanent. Another budget proposal would increase the wage base from $7,000 to $15,000 annually beginning in 2014 but lower the rate so that employers’ FUTA tax liability would not increase.

Employers should be aware that likely changes to the FUTA tax are on the horizon.