December 7, 2004--The Internal Revenue Service (IRS) announced last week that it will increase the minimum threshold for Federal Unemployment Tax Act (FUTA) deposits to $500. The threshold increase is expected to reduce the paperwork burden for over 4 million small businesses.

"The IRS is committed to reducing burden on taxpayers whenever we can," said IRS Commissioner Mark W. Everson in a statement. "The new rules will help cut paperwork for millions of small businesses. The IRS Office of Taxpayer Burden Reduction is continually reviewing what other steps we might take that will save money and time for businesses."

The new rules, which go into effect on January 1, 2005, will require employers to make quarterly deposits for unemployment taxes if the accumulated tax exceeds $500. Currently, employers are required to make quarterly deposits if the tax exceeds $100.

The most the IRS collects per employee from employers is $56 per year, if the employer has paid their state unemployment taxes in a timely manner. The current $100 threshold, established in 1970, requires businesses with two or more employees to make at least one federal tax deposit each year. Increasing the threshold to $500 reduces the burden for employers with eight employees or less by eliminating making FUTA tax deposits up to four times a year.