CHAPTER 5 UNEMPLOYMENTCOMPENSATIONTAXES Developed by Lisa Swallow, CPA CMA MS

FUTA and SUTA zFUTA yFederal Unemployment Tax Act xEmployer tax required for administration of federal and state unemployment insurance zSUTA yState Unemployment Tax Acts xDifferent for each state xFunds used to pay benefits and administer program at state level

Who Pays FUTA zFUTA passed to comply with SSA of 1935 zEmployers are liable for this tax if they: yPay $1500 of wages in any quarter in current or prior year yEmploy one or more person in one day of each of 20 weeks in current or prior year y**Then liable for FUTA for entire year** yEmployees include ypart time, temps and regular workers yworkers on vacation/sick leave

Services Covered under FUTA General rule is everyone is EE if common-law relationships exists (with specific exceptions as follows) yPartners yDirectors yIndependent contractors yKids under 21 working for parents yRRTA or governmental employees yNonprofits (church, educational, etc.) yComplete list on page 5-4

SUTA and Interstate EE zGenerally covered under SUTA if covered under FUTA zMulti-state employees - which state does ER pay SUTA to (apply following in order) xwhere is work localized (work primarily performed) xwhere is the operational base (management, business records) xwhere are operations directed (state where control exists) xemployee’s place of residence yIf above do not yield appropriate answer, Interstate Reciprocal Coverage Arrangement may be fashioned (in most states)

Taxable Wages for FUTA/SUTA zTaxable FUTA wage base caps at $7000 per employee per year zTaxable SUTA wage base caps at different amount in each state zWages include: ybonuses, advances, severance pay ystock compensation (FMV) ytips ycomplete list in chapter 5

Specifically Exempt Wages for FUTA yWorkers compensation payments yRetirement pay yEducational assistance payments if part of nondiscriminatory plan yMeals and lodging, if for ER’s benefit yStrike benefits yComplete list in chapter 5

FUTA Rates yFUTA = 6.2% of first $7000 of gross wages for each employee per year y5.4% credit against FUTA made for SUTA Therefore gross = 6.2% - 5.4% credit =.8% net yTo get 5.4% credit must have: yMade SUTA contributions by due date of form 940 yBeen located in state that is not in default on their Title XII advances (credit is reduced.3% per year beginning the second year after the advance)  Title XII is the act that allows states to borrow unemployment compensation funds from federal government

FUTA Deposit and Reporting Overview Deposit quarterly (but only if cumulatively over $100) z1/1-3/31 deposit by 4/30 z4/1-6/30 deposit by 7/31 z7/1-9/30 deposit by 10/31 z10/1-12/31 deposit by 1/31 File annually zForm 940 due by 1/31 of following year

How Much FUTA to Deposit zIf $100 or more, must deposit zIf less, can wait and add to next quarter, then if it’s $100 or more, must deposit zIf never gets over $100, pay with form 940 or 940-EZ at year end zUse 8109 coupon and deposit with Federal Reserve Bank or deposit electronically

FUTA Reporting Requirements zForm 940 or 940-EZ by 1/31 next year yUnless only household employees, then can file Schedule H with the individual 1040 tax return yCan file form 940-EZ if: yPaid SUTA timely yPaid SUTA to one state yState is not in Title XII default ySUTA taxable wages = FUTA taxable wages zCan amend (check appropriate box above Part I) zUpon cessation of business, check “final return” box

SUTA Deposit and Reporting Overview zSUTA requirements vary widely by state zIn some states, EE withholding is required for SUTA, in that case EE and ER SUTA deposited together zSUTA quarterly contribution report generally shows: yeach employee’s gross wages and taxable SUTA wages (wage information) ycontribution rate x taxable SUTA wages yamount of required payment

Additional SUTA Information Reports zStatus reports yinitial registration with state as employer liable for SUTA zSeparation Reports yinforms state of separated employees - aids in determination of eligibility for benefits zPartial Unemployment Notices ynotifies state and employees (who have had their hours cut back to part time) of potential eligibility for partial unemployment benefits

Unemployment Compensation Benefits zEach state individually qualifies and pays unemployed workers yClaimant must meet strict requirements including: xability and availability to work xproof of actively seeking work yVarying minimum and maximum amounts (average benefit = approximately 50% of gross wages) ySome states distribute additional amounts for each dependent the worker has in his/her home

Unemployment Compensation Benefits (continued) zBenefits in special situations yBenefits continue past “normal” 26 week period if unemployed due to major disaster (up to one year after disaster declaration) yFederal employees may receive benefits under state law in which EE last worked yUnemployed military personnel may receive benefits from the state in which most recently separated from active service