UNEMPLOYMENT COMPENSATION TAXES

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FUTA and SUTA. FUTAFederal Unemployment Tax ActEmployer tax required for administration of federal and state unemployment insurance programsSUTAState Unemployment Tax ActDifferent for each stateFunds used to pay benefits and administer program at individual state's level. 0. Who is Covered und

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UNEMPLOYMENT COMPENSATION TAXES

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1. CHAPTER 5 UNEMPLOYMENT COMPENSATION TAXES

2. FUTA and SUTA FUTA Federal Unemployment Tax Act Employer tax required for administration of federal and state unemployment insurance programs SUTA State Unemployment Tax Act Different for each state Funds used to pay benefits and administer program at individual state’s level

3. Who is Covered under FUTA FUTA passed to comply with 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, in one day in each of 20 weeks in current or prior year Special rules for agricultural and household employers Then liable for FUTA for entire year!! Employees include Part-time, temps and regular workers Workers on vacation/sick leave

4. Employees Covered under FUTA General rule is everyone is considered an EE if common-law relationship exists Also included Drivers who distribute food/beverage/laundry Traveling salespeople [specific situations] Specific exceptions as follows Partners Directors Independent contractors Children under 21 working for parents RRTA or governmental employees Nonprofits (church, educational, etc.) Complete list on page 5.5 – 5.6

5. Who is Covered under SUTA Employees generally covered under SUTA if covered under FUTA Many states apply “ABC” test for SUTA exclusion Is the person free from control/direction Is work performed outside usual course of business Is person usually engaged in an independent trade or business

6. Interstate Employees and SUTA With multi-state employees, there is an issue as to which state does ER pay SUTA (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 exist) Employee’s residence If above does not yield appropriate answer, Interstate Reciprocal Coverage Arrangement may be fashioned (in most states) Americans working overseas for American company are covered

7. SUTA Rates 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 SUTA Dumping Prevention Act mandates that states enact laws to stop businesses from lowering their unemployment rates through creating new entities

8. Taxable Wages for FUTA/SUTA 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 Complete list (pp 5.8 - 5.9)

9. Specifically Exempt Wages for FUTA Worker’s compensation payments Retirement pay Educational assistance payments If part of nondiscriminatory plan Meals and lodging If for employer’s benefit Strike benefits Complete list on page 5.9

10. FUTA Rates FUTA = 6.2% of first $7,000 of gross wages for each employee per year 5.4% credit against FUTA made for SUTA Therefore gross = 6.2% - 5.4% credit = .8% net To get 5.4% credit must have: Made SUTA contributions on timely basis Been located in a state that is not in default on their Title XII advances Title XII allows states to borrow unemployment compensation funds from federal government Credit is reduced (.3% per year beginning the second year after the advance)

11. FUTA Deposit and Reporting Overview 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

12. FUTA Reporting Requirements 940 has multiple sections Based upon answer to following questions, organization may only need to complete certain parts: Did company pay SUTA timely? Did company pay SUTA to one state? Is state in Title XII default? Do SUTA taxable wages = FUTA taxable wages? Can amend (check appropriate box above Part I) Upon cessation of business, check box

13. How to File 940 Form 940 due by 1/31 next year Filed with IRS district center in which business if located Can e-file

14. How Much FUTA to Deposit 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. SUTA Deposit and Reporting Overview SUTA requirements vary widely by state In some states, EE withholding is required for SUTA In that case SUTA for both EE and ER 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

16. Additional SUTA Information Reports Forms vary by state but may include: Status reports Initial registration with state as employer liable for SUTA 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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