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Unemployment Insurance Section 7

Unemployment Insurance Section 7. OVERVIEW. Who must pay FUTA and who is exempt FUTA tax rate and wage base Depositing and paying FUTA tax State credits against FUTA tax liability Reporting FUTA tax on Form 940 Penalties for FUTA Noncompliance Summary of State Unemployment Facts.

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Unemployment Insurance Section 7

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  1. Unemployment Insurance Section 7

  2. OVERVIEW • Who must pay FUTA and who is exempt • FUTA tax rate and wage base • Depositing and paying FUTA tax • State credits against FUTA tax liability • Reporting FUTA tax on Form 940 • Penalties for FUTA Noncompliance • Summary of State Unemployment Facts

  3. What is FUTA? Federal Unemployment Tax Act of 1939 Provides income for terminated employees while they seek other employment Jointly funded program at the Federal and State level from employer contributions Funding is used to pay for the various unemployment programs developed and administered by the States

  4. Who Must Pay FUTA Covered Employers Employers/ Farm Employers/ Domestic Employers Page 7-2 Exempt Employers Federal, State & Local governments Religious, Charitable or Educational Organizations Indian Tribes

  5. Types of Exempt EmploymentPage 7-3 • Work Performed for: • Federal, State, Local Gov’t Employer • On a foreign ship outside of U.S., full-time students for the school where they attend classes or organized camp. • Foreign gov’t or int’l organization (NATO, UN) • Student nurses or hospital interns, commission only insurance agents, newspaper delivery under 18, nonimmigrant aliens working under FJM or Q visas. • Work performed by: a child under 21 for parents, inmate of penal institution, election worker pd less than $16,00 in 2014, alien agricultural worker on H-2A • Statutory nonemployees

  6. FUTA Tax Rate / Wage Base 6.0% Permanent Tax Rate $7,000.00 Wage Base (Gross minus Flex) 5.4% Credit (if employer pays state unemployment taxes in full and on time)

  7. Depositing and Paying FUTA Tax .006 or .6% of the 1st $7000.00 in annual taxable wages ($42.00) Deposit Due Dates – Last day of the month following the end of the quarter. Deposit threshold $500, if less than $500 in the first 3 quarters deposit all at end of year. Previous quarter is rolled into next. Final Quarter liability – Form 940

  8. Calculating State Credits 90% or “normal” credit (6% * 90% = 5.4% credit) All state taxes must be paid by Form 940 deadline The State must make timely payments of all interest due on loans! Amounts must “actually” be paid. If Company is “Exempt” from State UA, then must pay full 6% for FUTA

  9. Reporting FUTA Tax Form 940 - Annual Return- 1/31 Automatic Extension- 2/10 – if paid all tax on time How to correct a 940 - Amended Be aware of States that failed to pay back the loan amount. *FUTA CREDIT REDUCTION * This additional FUTA is paid through 940 form at year end.

  10. Penalties for Noncompliance Late filing of Form 940 - 5% Failure to pay FUTA tax - .5% Paying FUTA late – 2% of tax within 5 days 5% of tax within 6-15 10% of tax after 15 days 15% after 10 days of IRS Notice Mandated EFTPS depositors – if not paid by EFTPS there is a 10% penalty

  11. State Unemployment Facts • Coverage – where employee’s perform work. • Work in multiple states? – 4 factors • Are services localized, base of operations, place of direction or control, state of residence(rare) • Taxable Wage Base – usually same as FUTA • MI = Gross($9,500 wage base) • Contribution rates (page7/24) • Reserve Ratio • Benefit Ratio • Benefit Wage Ratio Method • SUTA dumping! • State Disability Insurance – CA, HI, NJ, NY, RI, PR

  12. State Unemployment Facts • SUTA dumping! • Nonprofit and public sector employees • Direct reimbursement • Voluntary Contributions – help improve employers reserve ratios to help with rates. • Reporting Requirements: • Total wages paid, taxable wages paid, nontaxable wages paid, number of employees each month, gross wages for each employee, taxable/nontaxable wages breakdown for each employee, number of weeks worked by each employee.

  13. Questions ?

  14. Break

  15. Section 8:Depositing & Reporting Withheld Taxes

  16. Tax Deposit Rules • (EIN) Employer Identification Numbers (Form SS-4) • Deposit Requirements (monthly/semi-weekly) • Look back Period • 12-month period ending the preceding June • 2014 = 7/1/2012 - 06/30/2013 • Look back period $50K or less – monthly • $50K – semi-weekly*** • Next Day Rule = $100,000 • Different Rules for Small Employers

  17. Monthly Depositors • Employers with $50K or less in employment tax liability during the look back period. • Deposit is due by the 15th of the following month it is withheld.

  18. Semi-Weekly Depositors • Employers with more than $50K in employment tax liability during the look back period. • For wages paid on Wed, Thur, Fri deposit must be made by following Wednesday • For wages paid on Saturday, Sunday, Mon and Tue deposit must be made by following Friday

  19. One Day Rule • Employers with tax liability that reached $100K on any day during a monthly or semiweekly deposit period MUST make a deposit by the close of the next business day.

  20. Depositing Taxes/Penalties • EFTPS (Required in 2011) • Shortfall Rule = 98% of tax due • Penalties – Failure to Deposit Timely • 2% (5 days) • 5% (6-15 days) • 10% (> 15 days) • 15% (10 days after IRS delinquency)

  21. Liability • Employers cannot shift deposit liability to payroll service provider, reporting agent or accountant. • Employer’s responsible to IRS for any shortfalls or penalties. • Form 8655 – Reporting Agent Authorization • Does not relieve the client employer of the responsibility or liability for failing to ensure all returns are filed timely and deposits are made timely.

  22. Reporting Withheld Taxes • Employment Tax Return form 941 and 941 Schedule B • Small Employers (<$1000) – Form 944 • Non-payroll withholding form 945 and 945A • Agricultural reporting form 943 and 943A • Payroll outside the US forms - 941PR and 941SS • Penalties – Late Return - 5% of tax up to max 25% • Forms 941-X – Adjustments to Form 941 • Form 941 –M Employers Monthly Federal Tax Return • Form 843 Claim for Refund an request for Abatement (interest, additions and penalties)

  23. Information Reporting for Employees and Non-employees • Form W-2 • Form W-3 (Summary for Paper W-2’s) • Form 1099 Series (Misc & R) • Form 1096 (Summary for 1099’s) • Penalties = $30 within 30 days $60 between 30 days and 8/1 $100 after 8/1 up to $1.5M

  24. Correcting Reports and Information Returns • Form W-2C • Not needed for incorrect address • Form W-3C

  25. Third Party Representation • Form 8655 – Reporting Agent Authorization • Form 2848 – POA and Declaration of Representative • Form 2678 – Employer/Payer Appointment of Agent – Needs IRS approval (Agent ‘could’ be responsible)

  26. Forms to Remember • Form SS4 (EIN Application) • 941, 941 Schedule B • 941-X • 943, 943A, and 945, 945A • 1099-MISC, 1099-R, 1096 • W-2, W-3, W-2C, W-3C

  27. QUESTIONS

  28. REMINDERS • Study Hard • Take practice exams • Ask for help • Don’t give up! • Find success!

  29. Discussion Time Any questions on: • Prior Topics • Topic this week • Homework Problems

  30. Next Class Topics: Section 9 Other Deductions from Pay and Section 10 Record Keeping & Record Retention

  31. CALCULATION TIME

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