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Unemployment Insurance. PT= 3 & 7 PS= 7. Agenda. Federal Unemployment Tax Who pays FUTA Exempt wages Exempt Employment FUTA Tax Rate & Wage Base Depositing & Reporting FUTA tax Calculating the State Credits Form 940 Penalties for noncompliance. Agenda. State Unemployment Insurance

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unemployment insurance

Unemployment Insurance

PT= 3 & 7 PS= 7

agenda
Agenda
  • Federal Unemployment Tax
    • Who pays FUTA
    • Exempt wages
    • Exempt Employment
    • FUTA Tax Rate & Wage Base
    • Depositing & Reporting FUTA tax
    • Calculating the State Credits
    • Form 940
    • Penalties for noncompliance
agenda3
Agenda
  • State Unemployment Insurance
    • Employment Relationship
    • SUI Taxable wages
    • Contribution rates & Experience rates
    • Voluntary Contributions
    • Joint or combined accounts
    • Unemployment Benefits Process
    • Reporting Requirements
  • State Disability Insurance
who must pay futa
Who must pay FUTA?
  • Nonfarm employers paying $1,500 or more in covered wages in any calendar quarter (current or preceding year)
  • Nonfarm employers employing at least one employee for at least one day in 20 different weeks(not consecutive) (current or preceding year
  • Farm employers paying $20,000 or more in covered wages in any calendar quarter (current or preceding year)
  • Farm employers employing at least 10 employees for at least part of one day in 20 different weeks(not consecutive) (current or preceding year)
  • Employers paying domestic employees $1,000 or more in any calendar quarter (current or preceding year) incl. private home, college club, fraternity or sorority
who does not pay futa
Who does not pay FUTA
  • Easier to say who does not pay. . .
  • Federal, State and Local government employees including Indian Tribes
  • Nonprofit, religious, charitable or educational organizations that are tax exempt
exempt wages
Exempt Wages
  • Sick or disability benefits paid more than six calendar months
  • Sickness or injury payments made under a state workers comp law
  • Payments made under a 125 flex plan-other than adoption or deferred compensation
  • Noncash payments for work outside the employers business
  • Qualified moving expense
  • Death or disability retirement benefits
  • Noncash payments to agricultural

workers

  • Reimbursement or provision for educational or dependent care assistance
  • The value of GTL(entire amount )
  • Value of deductible meals & lodging provided by employer
  • Wages paid to a beneficiary after the year of an employees death
  • Tips not reported by an employee
exempt employment types
Exempt Employment Types
  • Federal, state, local government employers incl. political subdivisions
  • Work on a foreign ship outside U.S.
  • Work by full time students at the school they are attending
  • Work for a foreign government or international organization
  • Student nurses or hospital interns
  • Insurance agents, commission only
  • Newspaper deliverers under 18
  • Non immigrant aliens under F, J, M or Q visas
  • Work for a spouse or child
  • Work performed by a child under 21 for their parents
  • Work by inmates of a penal institution
  • Work by election worker paid < $1500 in 2011
  • Alien agricultural workers under an H-2A visa
  • Statutory nonemployees
futa tax rate wage base
FUTA Tax Rate / Wage Base

FUTA Tax rate is 6.2%

Comprised of :

6.0 % permanent rate

.2% Surcharge

Tax is employer paid

Some states have

Employee contributions

Mandated.

Rate is applied to the

First $7,000 of an employee’s

Covered wages

The surcharge was due to expire at the end of 2009. However, the Worker, Homeownership and Business Assistance Act of 2009 extended the .2% surcharge through June 30, 2011.

The .2% surcharge was allowed to lapse effective July 1, 2011.

Constructive payment rules apply – doesn’t matter WHEN wages were earned. DOES matter when they are PAID.

futa tax rate wage base9
FUTA Tax Rate / Wage Base

If employers pay their state unemployment taxes in full and on time

A Credit up to 5.4% can be taken

Full credit allows for tax calculation to be .8 % PRIOR TO 7/1/11

Maximum paid $7.000 x .6% = $56.00 per employee

AFTER 7/1/11 – Full credit allows for tax calculation to be .6%

Maximum paid $7.000 x .6% = $33.60 per employee

Payment by successor companies based on the company application of the Social Security tax payment – however both predecessor and successor must be covered under FUTA.

Common paymaster companies follow the same practice as the withholding and payments for Social Security and Medicare

depositing paying futa tax
Depositing & Paying FUTA Tax

Employers can assume the credit for the first three quarters of a calendar year

Thus multiplying wages by .08% --up to $7,000 wage base limit or $56.00 for 1st & 2ndQtr 2011 and by .06% --up to $7,000 wage base limit or $33.60 for 3rdQtr 2011

If amount for all employees is $500 or greater then the deposit is due respectively

1st quarter--- April 30

2nd quarter-- July 31

3rd quarter – October 31

If under $500 then the amount need not be deposited but carry over to the next quarter until the threshold of $500 is met .

The final quarter when filing the 940 and annual liability is reviewed:

Employer verifies the actual credit percentage

Adjusts if any difference necessary

Verifies 4th quarter liability

if < $500 then can be paid with the 940 by January 31

if > $500 must be paid separately by January 31

calculating the credit
Calculating the credit

Two types of credit scenarios are available:

90% or normal credit- 5.4 %

Additional credit – utilize the lesser rate of the state

Regardless of which option used:

State must have “certified unemployment insurance program”

The credit utilized cannot exceed the 5.4%

90 or normal credit
90% or normal credit

To claim the full 5.4% credit all deposits due must be made as required by law with the final payment being no later than when filing the 940.

All State unemployment payments must be made timely… if sent to wrong state, proof of timely submission will allow the credit.

If payment is late to the state employer must calculate the liability as:

Annual Liability amount $1600. –Paid $1000 timely -- $600 late

Timely state payment $1000 x 100% = $1000.

Late state payment $600.00 x 90% = $540.00

Total credit on the liability = $1540.00

additional credit allowance
Additional Credit allowance

If an employer has a state unemployment rate that is less than 5.4 %, the employer receives a credit for the difference between the FUTA credit of 5.4% and the state unemployment rate.

Example: state unemployment rate is 3.6%The credit is 5.4 % - 3.6% = 1.8% x FUTA taxable wages

credit reductions state loans for ui
Credit reductionsState loans for UI
  • States that have high unemployment, may borrow funds from the federal agency to assist in benefit payments.
  • The loans must be repaid by the end of the following year to avoid a credit reduction
  • If the loan is not paid in full then a .3 % reduction is imposed new credit rate to be 1.1%.
  • The credit reduction can be avoided should certain criteria be met as of November 10:
    • Solvency of the unemployment system
    • Company ability to complete the payment timely
    • No further necessity to borrow
form 940
Form 940

Annual filing form showing the company's FUTA liability.

Due date is January 31st following the year of the liabilities.

All forms must be signed by an owner, president, vice president,

principal corporate officer, authorized partner or fiduciary.

Delivery must be made by mail, delivery service or hand delivered to

the company’s appropriate IRS office , assigned based on where

the business Is located, of if payment is accompanying the form.

Employers have an automatic 10 day extension for filing their Form 940 as

long as their liability each quarter was paid in full and on time.

amended 940
Amended 940
  • Amended 940 –
  • Resend the corrected form with the box checked that is labeled “Amended ” (Box a)
  • Attach a statement explaining why the amended return is necessary
  • Certification from state for credit allowance or credit reduction
    • If overpayment is claimed:
      • Attach file 843—Claim for Refund and Request for Abatement
    • If underpayment situation:
    • Include check for underpayment amount along with appropriate late filing
    • percentage
  • Amended 940 cannot be electronically filed – must be a paper form sent to IRS
  • Additional notes :
  • Successor company – needs to file and check the box labeled “Successor Employer”
  • Out of Business – need to file, pay and check the box labeled “Final: Business closed or
  • Not paying wages”
line by line
Line by Line

General filing information:

Business name and EIN must be on the top of each page

If paper form must use a 12 point Courier point

Dollars posted to the left and cents to the right of the decimal

Do not use dollar signs or decimals—commas are optional

Amounts on the form may be rounded

If rounding – must be consistent

Do not post 0(zero) leave blank

If applicable ensure to check the necessary box

line by line18
Line by Line
  • Part 1, Line 1a– State abbreviation
  • Part 1, Line 1b – Multi-State employer Check box
    • Must complete Part 1 of Schedule A
  • Part 1, Line 2 – Credit reduction status check box
    • Must complete Part 2 of Schedule A
  • Part 2, Line 3 – Total payments to all employees (all wages)
  • Part 2, Line 4– Payments exempt from FUTA
  • If amount on line 4 must check the applicable boxes 40a- 4e
    • 4a-Fringe benefits – this includes qualified moving expenses (talk to AP)
    • 4b- Group Term Life
    • 4c – Retirement / Pension
    • 4d – Dependent care
    • 4e – Other – agriculture, visas, workers comp, etc
  • Part 2, Line 5—Total of payments made to each employee in excess of $7,000
  • Part 2, Line 6– Subtotal –Total of exempt payments (line 4+ 5)
  • Part 2, Line 7 – Total taxable FUTA wages (line 3-6)
  • Part2, Line 8 – FUTA tax before adjustments- (Line7 x.08)
line by line19
Line by Line

Part 3, Line 9 – If all FUTA wages paid were exempt from SUTA—

Must pay those wages at full 6.2% ( line 7 x 5.4%)

Part 3, Line 10 –If some FUTA wages paid were exempt from SUTA or paid late

Complete the worksheet and transfer line 7 into line 10 on 940

Part 3, Line 11– If credit reduction applies—transfer line 3 from Schedule A to

Line 11 on the 940

Part 4, line 12 – Total FUTA taxes after adjustments– (add lines 8-11)

Part4, Line 13 –FUTA tax deposited for the year

Part 4 Line 14– Balance due (line 12-13)

Part 4, Line 15 –Overpayment (line 13-12)

line by line20
Line by Line
  • Part 5 – Report your FUTA tax liability by quarter only if line 12 is >$500
  • Part 5, Line 16 – Report the FUTA tax liability for each quarter
    • This is the actual liability - not deposit amounts
  • Part 5, Line 17 - Total tax liability for the year (add lines 16a- 16d
  • Part 6 – May we speak with your third party designee?
  • Designee may
    • Give the IRS any information that is missing from the form
    • Ask the IRS for any additional information about processing the form
    • Respond to certain IRS notices—math errors & processing form
  • Designee may not
    • Receive refunds
    • Bind employer to anything
    • Nor represent the employer before the IRS
  • Part 7– Sign here--- Must be signed
  • Paid preparer’s use only– Vendor that has completed the form
schedule a and 940 v
Schedule Aand 940 -V

Schedule A -- Multi-State employer and Credit Reduction Information

Part 1, Line 1– Check box for every state in which you were required to pay SUI tax

Part 2 Line 2 – Credit reduction for specific states – (add lines 2b,2d,2f)

Remember – Indiana, Michigan, and South Carolina are credit reduction states for

2010

Part 2 Line 3 - Total Credit reduction

940-V– Form 940 Payment Voucher

Utilized only when making payment with the 940.

Credit card payments or wire amounts can be made with one of three authorized service providers, that have obtained prior approval.

Payments can be made 24/7.

Payments made via phone or internet

Provider charges a fee based on amount of payment

penalties for futa noncompliance
Penalties for FUTA Noncompliance

Late filing of Form 940 – addition to tax

5% if the amount of tax required to be shown on the return( reduced by timely

Deposits and credits) for each month or fraction of month return is late

Maximum of 25%

If fraudulent return– amounts increase to 15% up to a maximum of 75%

Failure to pay FUTA tax- addition to tax

5% if the amount of tax required to be shown on the return( reduced by credits) for each month or fraction of month payment is late to a max of 25%

An additional .5% on the amount if notice or demand is issued and not

Paid within 21 days (10 days if amount is at least $100,000) up to a max of 25%

If not paid percentage increases to 1% -- if not paid within 10 days- demand notice issued with one day to pay or levy issued to company signer.

penalties for noncompliance
Penalties for Noncompliance
  • Failure to file and pay – the addition for failure to file is reduced by .5% of unpaid tax
  • Assessed if both late deposit and late filing
  • Reasonable cause—Affirmative statement under penalty of perjury that the employer
  • “exercised ordinary business care and prudence” and could still not pay or file.
  • Accuracy related penalty – understating the amount or mathematical errors result in a 20% penalty on the difference of the error
  • Failure to make timely deposits -if not deemed willful neglect or approved as reasonable cause. Additional late penalty is assessed based on a
  • four tier scale:
    • 2% if the undeposited amount is paid within 5 days of due date
    • 5% if the undepositted amount is paid within 6-15 days of the due date
    • 10% if the undeposited amount is paid more than 15 days after the due date
    • 15% of the undeposited amount in not paid within 10 days of notice
  • Beginning in 2011, all federal tax deposits must be made using EFTPS
    • 10% penalty for not paying via EFTPS (not applicable to employers who owe less than $500.)
state unemployment insurance25
State Unemployment Insurance

Applicable for employees not independent contractors

Each state sets their own wage base and rate

Employers conducting business or services in multiple states need to allocate for unemployment purposes

Four factors when allocating:

Are services localized? – one primary location and other state activity is incidental, temporary

Does the employee have a base of operation? - office, reports to corporate office , etc

Is there a Place of Direction or control? – no localization, no office , results to their superior where direction will be communicated

What is the employees state of residence? – In rare cases where none of the aforementioned apply. .. The employee’s residential state is to be utilized.

Reciprocal agreements allow for employers to choose one state for payment when the employee frequents between the states.

suta taxable wages
SUTA Taxable Wages

FUTA requires each state’s taxable wage base must at least equal the FUTA taxable

wage base of $7,000.

Types of payments included as taxable wages by the states generally follow the FUTA taxable wage base. BUT … don’t ASSUME!

States can raise or lower their taxable wage base and will usually notify employers of

changes prior to the beginning of the new tax year.

contribution rates experience rating
Contribution Rates & Experience Rating

Contribution rate is the rate a employer applies to its taxable payroll for each employee up to a state determined wage base limit

Experience rating is the assessment of the contribution rate based on the employers average annual taxable wages and unemployment benefits charged.

methods to determine experience rate
Methods to determine Experience rate
  • Reserve Ratio – primarily used – account assigned for company payments and reduced based on benefits charged
    • Reserve Ratio = Unemployment taxes paid – Benefits charged
    • Average Taxable Payroll
    • (the HIGHER the ratio, the lower the tax rate)
  • Benefit Ratio- 2nd most used formula –
    • Benefit Ratio = Benefits charged / Total taxable payroll
    • (the LOWER the ratio, the lower the tax rate)
methods to determine experience rate29
Methods to determine Experience rate
  • Benefit wage ratio method – Used in Delaware an Oklahoma
    • Benefit wage ratio = Benefit wages paid / Total taxable payroll
    • (the LOWER the ratio, the lower the tax rate)
  • Payroll Stabilization – Alaska only state to utilize
    • Fluctuation in payroll from quarter to quarter either increases or decreases the rate
  • Surcharges may be assessed if the state is experiencing high
  • unemployment, or has federal loan assistance. The surcharge may or may not play a factor when determining state credit against FUTA tax liability, depending on the reason it was established.
  • New Employer Rate - usually depends on the new employer’s industry
suta dumping prevention act 2004
SUTA Dumping Prevention Act 2004
  • Law created to eliminate the Shell scam of creating a bogus company and transferring its employees to the newly created company, with a lower tax rate, and thus paying less UI and allowing its company’s higher rate to decrease.
  • Law mandated each state put in place processes around the below four factors:
  • Failure to have these controls will prohibit the state to be certified under the FUTA Act.
  • Mandatory transfers– transfer between co-companies to benefit on UI
  • Prohibited transfers—new company cannot utilize the lower rate, a new company rate must be provided.
  • Penalties for SUTA Dumping– must have meaningful civil and criminal penalties
  • Procedures for identifying and processing SUTA Dumping must be established by each state
noteworthy suta laws
Noteworthy SUTA Laws
  • Non- profit and public sector generally follow one of two options
    • Direct reimbursement—Employer reimburses the state directly for any unemployment benefits
    • Choose to become experience rated (rare)
  • Employee contributions
  • Three states have plans that enforce a minute amount be contributed from the employee
  • Pennsylvania – Alaska - New Jersey ( PAN)
  • Voluntary Contributions - 27 states allow additional payments into the fund account to lower the employer’s tax rate. States have strict guidelines and timetables and not all employers are eligible.
joint or combined accounts
Joint or Combined Accounts

When employers have more than one subsidiary in a state with separate FEIN’s, they may want to look at joining the subsidiaries for unemployment insurance purposes. With the right mixture of good & bad unemployment experience, combining accounts may save the employer money.

Not all states offer the joint account option

The states that do allow the joint account option have very strict guidelines

unemployment benefit process
Unemployment Benefit Process

State Dept of Labor – places guidelines and conditions around granting

Unemployment Benefits.

DOL issued final ruling in 2007 to limit state’s payment of unemployment stating

employee must be “able and available to work”.

In most states, the “base period” is the first 4 calendar quarters out of the 5 preceeding the quarter during which the employee first filed the

claim for benefits.

Balanced Budget Act of 1997 included a provision that guarantees states

the discretion to administer base periods as they see fit.

Normal allowance is 26 weeks – Stimulus changed and extended the period.

unemployment benefit process34
Unemployment Benefit Process
  • American Recovery and Reinvestment Act of 2009 – states were offered federal incentive funding thru 2011 if they adopted ABP (Alternative Base Period) which looks at the immediately preceding four quarters of earnings.
  • Incentive funding was also made available for states that enacted at least 2 of the following 4 provisions:
  • Part time employees can get benefits as long as they are not earning more than the weekly benefit amount.
  • Coverage for workers who quit because of compelling family reasons
  • Coverage for workers in training programs
  • Dependent allowances
  • If employee worked for more than one employer during the base period, states can choose between 4 different methods to allocate benefit charges
  • Percentage of based period wages paid to claimant
  • Claimant’s most recent employer receives full charge
  • Employer who paid claimant the most wages during the base period receives full charge
  • Most recent base period employer charged first, then next most recent, etc
auditing and challenging benefit claims
Auditing and Challenging Benefit Claims

One way that company’s can lower their expenditures for unemployment is to

conduct account auditing and challenge claims in efforts to alleviate some expenses.

Heartless. .. But businesses do it and some even pay for services to be the bully.

reporting requirements
Reporting Requirements
  • Each state requires employers to submit quarterly reports with some or all of the following information:
  • 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
  • Many states require employers to file their quarterly wage information on some type of magnetic media – tape, cartridge, or diskette – or electronically file over the internet.
multiple worksite reporting
Multiple Worksite Reporting
  • Additional mandatory quarterly filing when an employer has multiple worksites.
  • MWR (Multiple Worksite Reporting) breaks down the employment and wages by
  • locality and industry.
  • Filed to the State Employment Security agency.
  • The Employment security agency in turn must file it with the Federal Bureau of Labor.
  • Mandatory vs. Voluntary reporting – 27 states have mandatory Multiple Worksite
  • Reporting requirements. Standardization of the form has streamlined
  • the process.
  • A mandatory MWR employer :
    • Uses one unemployment insurance account number for all its employees
    • Has more than on worksite, or conducts multiple activities
    • Has a total of at least 10 employees at all its secondary locations
  • Magnetic filing and internet options can be obtained at the Bureau of Labor Statistics website and publications.
state disability insurance
State Disability Insurance

California, Hawaii, New Jersey, New York, Rhode Island, and Puerto Rico, have State Disability Insurance.

Paid family leave in California – began in 2004

Family leave insurance in New Jersey – benefits available as of July 1, 2009

Contributions – SDI is funded by both the employer and the employee.