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
PT= 3 & 7 PS= 7
FUTA Tax rate is 6.2%
Comprised of :
6.0 % permanent rate
Tax is employer paid
Some states have
Rate is applied to the
First $7,000 of an employee’s
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.
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
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
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%
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
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
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.
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
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)
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
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
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.
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.
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 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.
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
State Dept of Labor – places guidelines and conditions around granting
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.
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.
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.