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Unit 10 State Payroll Taxes and Reports McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-3 State Unemployment Compensation Social Security Act of 1935: –established the federal unemployment insurance system, –states set up their own unemployment insurance programs. –state programs operate in partnership with the federal system. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-4 State Unemployment Compensation State programs: –Each state maintains: –local unemployment insurance offices that handle the claims from jobless workers, –check those claims, –and pay benefits. –Each state sets its own rules: –with regards to eligibility –amount of benefits, –and length of the payment period.

10-5 State Unemployment Compensation SUTA Tax and FUTA : –the federal government allows a credit of up to 5.4% of the state unemployment insurance (SUTA) tax to be paid by the employer. –the amount of FUTA tax actually owed may be as low as 0.8% –(6.2 percent — 5.4 percent = 0.8 percent). –The tax rates imposed by state unemployment compensation laws vary. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-6 State Unemployment Compensation SUTA Tax: –states have an experience-rating (or merit-rating) plan that affects the amount of SUTA tax employers pay. formula used to determine experience ratings varies from state to state, some states allow employers to make voluntary contributions in order to obtain better ratings. –SUTA tax computed and paid on a quarterly basis. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-7 State Unemployment Compensation SUTA Tax Example: Here is how the SUTA tax would be computed: $ 49,084 total taxable earnings of employees x.021 applicable SUTA tax rate $1, = SUTA tax Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-8 State Unemployment Compensation Unemployment Benefit Claims (California) : –The state immediately sends a notice of claim to that person’s last employer. –Applications are made at one of the state’s many employment development offices. –The employer verifies the information. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-9 State Unemployment Compensation Unemployment Benefit Claims (California) cont. – A state unemployment counselor interviews the claimants. –Focus of the interview is to determine the reason why the claimant lost his or her job. –Only claimants who are unemployed through no fault of their own are entitled to benefits. –Claimants who have been discharged for misconduct or voluntarily quit do not receive unemployment benefits. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-10 State Disability Insurance Tax State Disability Insurance Tax: –an employee who is unable to work because of non- related: –illness, –injury, –or accident. In some states, both employers and employees pay disability insurance tax Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-11 Workers Compensation Insurance Workers compensation insurance: –developed to protect employees and their families against the loss of income that results from job- related injuries, illnesses, or even death. –Most states have laws requiring employers to provide workers compensation insurance for their employees. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-12 Workers Compensation Insurance Premiums on Workers Compensation Insurance, –one common practice is for employers to pay the insurance company an estimated premium at the beginning of each year. –The estimated premium is based on the rate for each type of employees and the estimated amount of their wages for the year. –At the end of the year, the premium is adjusted according to the actual payroll for the year. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-13 SPECIAL STATE PAYROLL TAXES Special kinds of state taxes for employers: –California imposes an Employment Training Tax (ETT), which is paid by employers on a quarterly basis. This tax is used by the state to finance training for both employed and unemployed workers. The rate of the ETT is 0.1 percent (.001) of the first $7,000 earned by each employee during a calendar year. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-14 State Income Tax State income taxes: –Each state determines: the rates used, the depositors schedule, and the tax forms to be filed Obtaining information about State Income Tax –Most states publish a tax guide for employers. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-15 State Income Tax Depositing and Reporting State Withholding Taxes: –forms and procedures used to deposit and report the various withholding and payroll taxes differ from state to state. –The payroll-related taxes in California are: Unemployment Insurance (SUTA, which is called UI in California) Employment Training Tax (ETT) State Disability Insurance Tax (SDI) California Personal Income Tax (PIT) Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-16 State Income Tax-CA SDI and PIT deposits: –by electronic funds transfer (EFT). –employers who owed more than $20,000 in the last lookback period (July 1 to June 30) are required to use EFT. –A special bulletin is available explaining how the EFT system in California works and what employers must do to join the system. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-17 State Income Tax-CA Due Dates for Depositing State Withholding and Payroll Taxes: –employers are classified based on their federal status as: –next banking day, –semiweekly, –monthly, –quarterly depositors. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-18 State Income Tax-CA

10-19 State Income Tax-CA Quarterly Wage and withholding report: –Form DE 6, Quarterly Wage and Withholding Report. provide in formation about the wages paid to each employee during the quarter and the California personal income tax (PIT) withheld from those wages. The due dates for filing are April 1, July 1, October 1, and January 1. must be submitted even if no wages were paid to employees during the quarter. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-20 State Tax- CA

10-21 State Income Tax-CA Quarterly Wage and withholding report: –Form DE 6, Quarterly Wage and Withholding Report. provides information about: –wages paid during the quarter –California personal income tax (PIT) withheld. The due dates for filing are 4/1, 7/1, 10/1, 1/1. Must be submitted even if no wages were paid to employees during the quarter. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-22 State Income Tax-CA Form DE 7 (Annual Reconciliation Statement): –report is due on January 1 of each year and delinquent on January 31. –purpose is to reconcile the various state payroll and withholding owed for the year with the amounts deposited during the year. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-23 State Income Tax-CA

10-24 State Income Tax-CA WAGE AND TAX STATEMENTS –California required that employers submit a copy of a W-2, to report the state income tax withheld from the employee’s earnings during the year. –must also list the California Disability Tax withheld (CASDI). Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-25 State Income Tax-CA LOCAL INCOME TAX –cities and counties impose an income tax on residents who work within their boundaries. –local governments publish tax guides for employers. provide detailed information about: regulations, forms, and payment deadlines. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-26 Setting Up a Payroll Calendar Calendar of payroll activities: –is an important tool –surest way to avoid missing the date for making a tax deposit or filing a tax report is to set up and use a payroll calendar. –It is helpful if calendar also includes the dates when the payroll must be computed and checks must be issued. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10-27 Setting Up a Payroll Calendar

10-28 Unit Summary

10-29 Questions?