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UNEMPLOYMENT COMPENSATION TAXES.  FUTA  Federal Unemployment Tax Act  Federal law that imposes an employer tax  Required for administration of federal.

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Presentation on theme: "UNEMPLOYMENT COMPENSATION TAXES.  FUTA  Federal Unemployment Tax Act  Federal law that imposes an employer tax  Required for administration of federal."— Presentation transcript:


2  FUTA  Federal Unemployment Tax Act  Federal law that imposes an employer tax  Required for administration of federal and state unemployment insurance programs  SUTA  State Unemployment Tax Act  Different law in each state  Funds used to pay benefits and administer program at individual state’s level

3  FUTA originated through passage of SSA of 1935  Employers are liable for this tax if  Pay $1,500 or more of wages in any quarter in current or prior year  Employ one or more persons, on one day in each of 20 weeks in current or prior year  Special rules for agricultural and household employers If employer owes FUTA – liable for entire year!!  Employees include  Part-time, temps and regular workers  Workers on vacation/sick leave  Agricultural employees (special rules)  Household employer

4  General rule is everyone is considered an EE if common-law relationship exists  Also included  Drivers who distribute food/beverage or deliver laundry  Traveling salespeople (specific situations)  Specific exceptions as follows  Partners  Directors  Independent contractors  Home workers  Full-time life insurance salespeople  Children under 21 working for parents  RRTA or governmental employees  Nonprofits (church, educational, etc.)  Complete list on page 5.4

5  Employees generally covered under SUTA if covered under FUTA  Likewise employers specifically excluded under federal law generally excluded under state laws  Many states apply “ABC” test for SUTA exclusion  Is the worker free from control/direction  Is work performed outside usual course of business  Is person customarily engaged in an independent trade or business

6  With multi-state employees, sometimes a question arises as to which state ER should pay SUTA to (apply following in order)  Where is work localized (work primarily performed)  Where is operational base (management, business records)  Where are operations directed (state where control exists)  Employee’s residence  If above does not yield appropriate answer, Interstate Reciprocal Coverage Arrangement may be fashioned  Americans working overseas for American company are covered  In all states except five and Puerto Rico

7  Each employer’s rate based upon  Employee turnover and  State in which business is located  Some states utilize reserve-ratio formula to lower contributions based on low risk of unemployment  Some states reduce rates if employers make voluntary contributions to state fund  Nonprofits have option to reimburse state for actual amount of unemployment benefits paid instead of paying percentage  SUTA Dumping Prevention Act mandates that states enact laws to stop businesses from lowering their unemployment rates through creating new entities

8  Experience rating reflects stability of ER’s employment history  Also called merit rating  Provides for reduction in SUTA rates  Most common formula is reserve-ratio formula  Positive balance employers will experience lower tax rate  Some states require employees to contribute to SUTA  Some states allow ERs to reduce SUTA rates by making voluntary contributions to state fund

9  Taxable FUTA wage base caps at $7,000/year  Taxable SUTA wage base caps at different amount in each state (pp 5.13 - 5.15)  Wages include  Bonuses, advances, severance pay  Stock compensation - fair market value  Tips  Retroactive wage increases  Complete list of taxable wages found on pp 5.8 - 5.9

10  Bonuses under supplemental compensation plan paid upon retirement, death or disability  Advances or reimbursement of business expenses  Retirement pay  Educational assistance payments  If part of nondiscriminatory plan  Meals and lodging i f for employer’s benefit  Strike benefits  Complete list on page 5.9

11  FUTA = 6.2% of first $7,000 of gross wages for each employee per year  5.4% credit against FUTA (allowed for SUTA taxes)* Therefore gross 6.2% less 5.4% credit =.8% net FUTA *Even if experience rating allows ER to pay a lower rate than 5.4%

12  To get full 5.4% credit must have:  Made SUTA contributions on timely basis  On or before due date for filing  Been located in a state that is not in default on their Title XII advances  Title XII of the Social Security Act lends funds to states  Provides unemployment compensation funds from federal government  Credit is reduced (.3% per year beginning the second year after the advance)

13  Deposit quarterly - but only if cumulatively over $500  Due dates are as follows* 1/1 - 3/31 deposit by 4/30 4/1 - 6/30 deposit by 7/31 7/1 - 9/30 deposit by 10/31 10/1 - 12/31 deposit by 1/31  Form 940 due by 1/31 of following year  Filed annually *If falls on Saturday, Sunday or legal holiday, have until following business day

14  If $500 or more, must deposit by last day of month following close of quarter  If less, can wait and add to next quarter, then if it’s $500 or more, must deposit  If never gets over $500, pay with Form 940 at year-end  Use Form 8109 coupon and deposit with an authorized depository

15 940 has multiple sections  Part I - Did company pay SUTA to one state?  Part II – Calculate FUTA tax before adjustments  Part III – Determine adjustments  Part IV – Compare adjusted FUTA tax to deposits and calculated balance due or overpayment  Part V – Report FUTA liability  Parts VI – VIII – Delineate third party designee, paid preparer and sign  Individual may sign if sole proprietorship  Principal officer may sign if corporation  Duly authorized member may sign if partnership  Fiduciary may sign if trust or estate

16  Form 940 due by January 31 of next year  Or if timely deposits have been made, have until February 10 to file  Need to attach Schedule A (Form 940) if multi-state employer or have SUTA credit reduced  Filed with IRS District Center in which business is located  Can e-file after submit electronic letter of application to IRS  A final return must be filed in year company ceases doing business

17  SUTA requirements vary widely by state  In the states where EE also pays into SUTA, both EE and ER taxes deposited together  SUTA quarterly contribution report generally shows  Each employee’s gross wages and taxable SUTA wages (wage information)  Contribution rate x taxable SUTA wages  Amount of required payment  Usually includes wage information report per employee

18  Forms vary by state but may include:  Status Reports  Initial registration with state as employer liable for SUTA  Wage Information Report  Earnings per employee and SS# are reported  Separation Reports  Informs state of separated employees - aids in determination of eligibility for benefits  Partial Unemployment Notices  Notifies state and employees who have had their hours cut back to part-time of potential eligibility for partial unemployment benefits

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