1. Unemployment Insurance

2. 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

3. 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
Multiple Worksite Reporting

4. 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 necessarily 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 necessarily consecutive) (current or preceding year)
Employers paying domestic employees $1,000 or more in any calendar quarter (current or preceding year) for work in private home, college club, fraternity or sorority

5. Who does not pay FUTA Easier to say who does not pay. . .
Federal, state and local government employers including Indian tribes
Nonprofit, religious, charitable or educational organizations that are tax exempt

6. Exempt Wages
Sick or disability benefits paid more than six calendar months Sickness or injury payments made under a state workers comp law Deferred comp payments, not elective deferrals 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 employee’s death Tips not reported by an employee

7. Exempt Employment Types
Federal, state, local government employers including 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
Nonimmigrant 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 < $1600 in 2015 Alien agricultural workers under an H- 2A visa Statutory nonemployees

8. FUTA Tax Rate / Wage Base
FUTA Tax rate is 6.0%
Credit of up to 5.4% available for effective rate of 0.6%
Tax is employer paid
Rate is applied to the
first $7,000 of an employee’s
covered wages
Constructive payment rules apply – doesn’t matter WHEN wages were earned. DOES matter when they are PAID.
A 0.2% surcharge, in effect since 1976, was due to expire at the end of However, the Worker, Homeownership and Business Assistance Act of 2009 extended the surcharge through June 30, 2011.
The .2% surcharge was allowed to lapse effective July 1, 2011.

9. FUTA Tax Rate / Wage Base
If employers pay their state unemployment taxes in full and on time
a credit of up to 5.4% can be taken
Full credit allows for tax calculation to be 0.6%
Maximum to be paid $7,000 x .6% = $42.00 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

10. Depositing & Paying FUTA Tax
Employers can assume the credit for the first three quarters of a calendar year
thus multiplying taxable wages by .6% --up to $7,000 wage base limit for a maximum of $42.00 per employee
If amount for all employees is $500 or greater then the deposit is due:
1st quarter--- April 30
2nd quarter-- July 31
3rd quarter – October 31
If under $500 then the amount need not be deposited but carried over to the next quarter until the threshold of $500 is met .
The final quarter liability is determined when completing the 940:
Employer determines the actual state credit percentage
Verifies total FUTA liability for the year
if < $500 can be paid with the Form 940 by January 31
if > $500 must be deposited separately by January 31

11. Calculating the credit
Two types of credit scenarios are available:
1st: 90% or normal credit- 5.4%
2nd: Additional credit – equal to the difference between the state tax rate and 5.4%
Regardless of which option used:
State must have “certified” unemployment insurance program
The credit utilized cannot exceed 5.4%

12. 90% or normal credit
To claim the full 5.4% credit all deposits due must be made as required by state law with the final payment being no later than the 940 due date.
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 follows:
Annual Liability amount $1600 – Paid $1000 timely = Paid $600 late
Timely state payment $1000 x 100% = $
Late state payment $ x 90% = $540.00
Total credit on the liability = $

13. 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 additional credit is 5.4% - 3.6% = 1.8% The additional credit allow employers with a stable employment history to receive the same credit as other employers.

14. Credit reductions State loans for UI
States that have high unemployment rates 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 by Nov 10th then a 0.3% reduction is imposed, making the new FUTA rate 0.9% Each year a loan remains unpaid the credit reduction increases by an additional 0.3% After Nov 10th the IRS announces the credit reductions for that year and they are included on Form 940 Schedule A 3 states plus the Virgin Islands were credit reduction states for 2015

15. Form 940 Annual filing showing the company's FUTA liability
Due date is January 31st following the year of liability
All forms must be signed by an owner, president, vice president,
principal corporate officer, authorized partner or fiduciary.
Delivery must be made by US Postal Service or private delivery service to
the company’s appropriate IRS office, assigned based on where
the business Is located. If payment is accompanying the form,
different addresses must be used.
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.

16. Amended 940
Send the corrected form, checking the box 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 Form 843—Claim for Refund and Request for Abatement
If underpayment:
Include check for underpaid 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 and check the box labeled “Final: Business closed or
stopped paying wages”

17. 940 - 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 font
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 to the nearest dollar
If rounded – must be consistent
Do not enter 0 (zero) -- leave it blank

18. 940 - Line by Line Part 1, Line 1a – State abbreviation
Part 1, Line 1b – Multi-state employer check box
Must complete Schedule A
Part 1, Line 2 – Credit reduction state check box
Part 2, Line 3 – Total payments to all employees (all wages)
Part 2, Line 4– Payments exempt from FUTA
If there is an amount on line 4, check the applicable boxes 4a- 4e
4a--Fringe benefits – this includes qualified moving expenses
4b– Group-term life
4c – Retirement / Pension
4d – Dependent care
4e – Other – agriculture, visa workers, 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 (lines 4+ 5)
Part 2, Line 7 – Total taxable FUTA wages (line 3 - line 6)
Part 2, Line 8 – FUTA tax before adjustments (line 7 x .006)

19. 940 - Line by Line
Part 3, Line 9 – If all FUTA wages paid were excluded from SUTA, must pay FUTA tax at 6.0% (line 7 x 5.4%)
Part 3, Line 10 – If some FUTA wages paid were excluded from SUTA or paid late,
complete the worksheet in Form 940 instructions and enter from line 7 of the worksheet to line 10 on 940
Part 3, Line 11– If credit reduction applies, complete Schedule A and enter amount from Schedule A on Line 11 on 940
Part 4, Line 12 – Total FUTA tax after adjustments (add lines 8-11)
Part 4, 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)

20. 940 - Line by Line
Part 5, – Report your FUTA tax liability by quarter if line 12 is >$500
Part 5, Line 16 – Report the FUTA tax liability for each quarter
This is the actual liability - not your deposit amounts
Part 5, Line 17 - Total tax liability for the year (from Line 12)
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 information about processing the form
Respond to certain IRS notices—math errors & processing the form
Designee may not
Receive refunds
Bind employer to anything
Represent the employer before the IRS in any other matter
Part 7– Sign here--- must be signed
Paid preparer use only– person paid to complete the form

21. Schedule A and 940 -V
Schedule A -- Multi-State Employer and Credit Reduction Information
Check box for every state in which you were required to pay SUI tax
Credit reduction for specific states – 3 credit reduction states in 2015 plus US Virgin Islands
Total credit reduction is entered at bottom of Schedule A and in Line 11 of Form 940
940-V– Form 940 Payment Voucher
Utilized only when mailing a check with the 940
Payment can be made via EFTPS
Credit card or debit card payments can be made with one of three authorized service providers. Payments may be made via phone or internet. Provider charges a fee based on amount of payment.

22. Penalties for FUTA Noncompliance
Late filing of Form 940 – addition to tax
5% of 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
Up to a maximum of 25%
If late filing is fraudulent – amounts increase to 15% up to a maximum of 75%

23. Failure to pay FUTA tax- addition to tax
0.5% of the unpaid tax shown on the return (reduced by credits) for each month or fraction of month payment is late up to a maximum of 25%
An additional 0.5% per month on the amount of unpaid tax if notice or demand is issued and not paid within 21 calendar days (10 business days if amount is at least $100,000) up to a maximum of 25%
Percentage doubles to 1% -- if not paid within 10 days of a levy notice or within one day of a demand for immediate payment

24. Penalties for Noncompliance
Failure to file and pay – the addition for failure to file is reduced by 0.5% of unpaid tax
assessed if both late deposit and late filing occur
Reasonable cause—Affirmative statement under penalty of perjury that the employer
“exercised ordinary business care and prudence” and still could not pay or file
Accuracy-related penalty – Understating the amount of tax due could result in a 20% penalty on the understated amount if due to negligence

25. Failure to make timely deposits
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 undeposited amount is paid within 6-15 days of due date
10% if the undeposited amount is paid more than 15 days after due date
15% if the undeposited amount is not paid within 10 days of delinquency notice or same day as notice and demand for immediate payment
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)

26. State Unemployment insurance

27. State Unemployment Insurance
Applicable for employees -- not independent contractors
Each state sets their own wage base and rate
Employers conducting business or providing services in multiple states need to allocate wages 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, keeps business records)
Is there a place of direction or control? (no localization, no office, where their direction comes from)
What is the employee’s state of residence? (in rare cases where none of the aforementioned apply, the employee’s residential state is utilized)
Reciprocal agreements allow employers to choose one state for payment when their employee moves from state to state.

28. SUTA Taxable Wages
FUTA requires each state’s taxable wage base to be at least equal to 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 CAN DIFFER…
States can raise or lower their taxable wage base and will usually notify employers of
changes prior to the beginning of a new tax year.

29. Contribution Rates & Experience Rating
Contribution rate is the rate an employer applies to its taxable payroll for each employee, up to the state’s wage base limit
Experience rating is the assessment of the contribution rate based on the employer’s average annual taxable wages and unemployment benefits charged

30. Methods to determine Experience Rate
Reserve Ratio –used by majority – account assigned for 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 popular formula –
Benefit Ratio = Benefits charged
Total taxable payroll
(the LOWER the ratio, the lower the tax rate)

31. Methods to determine Experience Rate
Benefit wage ratio method – Used in Delaware and Oklahoma
Benefit wage ratio = Benefit wages paid
Total taxable payroll
(the LOWER the ratio, the lower the tax rate)
Payroll Stabilization – Alaska only
Fluctuation in payroll from quarter to quarter or year to year can either increase or decrease the rate

32. Surcharges may be assessed if the state is experiencing high
Surcharges may be assessed if the state is experiencing high unemployment, or has federal loan assistance.
The surcharge may be a factor when determining state credits against FUTA tax liability.
New Employer Rate - employer’s industry may be a factor
Will be in effect for a few years

33. SUTA Dumping Prevention Act 2004
Law created to eliminate the manipulation of state unemployment rates to achieve a lower tax rate (“dumping” the higher rate)
Each state must enact laws providing for the following four factors:
Mandatory transfers– unemployment experience must be transferred when partial or total transfers of business occur
Prohibited transfers—new company cannot utilize the lower rate of selling company-- a new company rate must be obtained
Penalties for SUTA Dumping– must have meaningful civil and criminal penalties for violating the transfer requirements
Procedures-- for identifying SUTA Dumping must be established

34. Pennsylvania – Alaska - New Jersey
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 charged to it
Can choose to become experience rated (usually more costly)
Employee contributions
Three states have plans that require employee contributions
Pennsylvania – Alaska - New Jersey
Voluntary Contributions - 26 states allow additional payments into the fund account in order to lower the employer’s tax rate. States have strict guidelines and timetables and not all employers are eligible.

35. 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

36. 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
individual must be “able and available to work”
In most states, the “base period” is the first 4 calendar quarters out of the 5 preceding 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 – Federal government may grant an emergency extension during periods of high unemployment

37. 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:
Coverage for part time workers
Coverage for workers who quit because of compelling family reasons
Coverage for workers in training programs
Dependent allowances
Part-time employees may qualify for benefits – employees whose hours are reduced are eligible as long as they are not earning more than the weekly benefit amount
Other payments may reduce benefits – holiday, vacation, dismissal or severance pay may delay a worker’s unemployment benefits in certain states

38. Unemployment Benefit Process
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 base 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 (up to a maximum amount), then next most recent, etc.

39. Auditing and Challenging Benefit Claims
Companies can lower their expenditures for unemployment by auditing and challenging claims.
Periodic Statements – provided by each state to the employer--should be audited regularly for errors and duplications
Challenging benefit claims – Employer should challenge claims for which they believe the former employee is ineligible and respond to all notices and requests for information.

40. 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, CD, or diskette – or electronically over the Internet.

41. Multiple Worksite Reporting
Additional mandatory quarterly filing when an employer has multiple worksites
MWR (Multiple Worksite Reporting) breaks down the employment and wage reports by locality and industry
The information is used by the Federal Bureau of Labor Statistics (BLS)
Mandatory vs. Voluntary reporting – 28 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 one worksite, or conducts multiple activities
Has a total of at least 10 employees at all its secondary locations
Magnetic and electronic filing options can be obtained at the Bureau of Labor Statistics website and are also in the BLS Electronic Data Reporting publication.

42. State Disability Insurance
California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico have State Disability Insurance programs to provide benefits to employees who are temporarily disabled by nonwork-related illness or injury
Paid Family Leave in California – began in 2004
Family Leave Insurance in New Jersey – began in 2009
Rhode Island Temporary Caregiver Insurance program – began in 2014
Contributions – SDI is funded by the employee and may include an amount to be funded by the employer. Some states allow the employer to pay all or part of the employee’s share.

43. Look for more changes