1. Payroll Accounting 2005 Bernard J. Bieg
CHAPTER 5
UNEMPLOYMENT COMPENSATION TAXES
Developed by Lisa Swallow, CPA CMA MS

2. FUTA and SUTA FUTA SUTA Federal Unemployment Tax Act
Employer tax required for administration of federal and state unemployment insurance programs
SUTA
State Unemployment Tax Acts
Different for each state
Funds used to pay benefits and administer program at individual state’s level

3. **Then liable for FUTA for entire year**
Who Pays FUTA
FUTA passed to comply with SSA of 1935
Employers are liable for this tax if
Pay $1,500 of wages in any quarter in current or prior year
Employ one or more persons, in one day in each of 20 weeks in current or prior year
**Then liable for FUTA for entire year**
Employees include
part time, temps and regular workers
workers on vacation/sick leave

4. Services Covered under FUTA
General rule is everyone is considered an EE if common-law relationships exists (with specific exceptions as follows)
Partners
Directors
Independent contractors
Children under 21 working for parents
RRTA or governmental employees
Nonprofits (church, educational, etc.)
Complete list on page 5-6

5. SUTA and Interstate EE
Generally covered under SUTA if covered under FUTA
Multi-state employees: issue is to which state does ER pay SUTA to (apply following in order)
where is work localized (work primarily performed)
where is operational base (management, business records)
where are operations directed (state where control exists)
employee’s residence
If above do not yield appropriate answer, Interstate Reciprocal Coverage Arrangement may be fashioned (in most states)
Americans working overseas for American company are covered

6. Taxable Wages for FUTA/SUTA
Taxable FUTA wage base caps at $7,000/year
Taxable SUTA wage base caps at different amount in each state (pp )
Wages include:
bonuses, advances, severance pay
stock compensation (FMV)
tips
complete list (pp )

7. Specifically Exempt Wages for FUTA
Worker’s compensation payments
Retirement pay
Educational assistance payments if part of nondiscriminatory plan
Meals and lodging, if for ER’s benefit
Strike benefits
Complete list on page 5.9

8. Therefore gross = 6.2% - 5.4% credit = .8% net
FUTA Rates
FUTA = 6.2% of first $7,000 of gross wages for each employee per year
5.4% credit against FUTA made for SUTA
Therefore gross = 6.2% - 5.4% credit = .8% net
To get 5.4% credit must have:
Made SUTA contributions on timely basis
Been located in a 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

9. FUTA Deposit and Reporting Overview
Deposit quarterly (but only if cumulatively over $100)
1/1-3/ deposit by 4/30*
4/1-6/ deposit by 7/31*
7/1-9/ deposit by 10/31*
10/1-12/ deposit by 1/31*
File annually
Form 940 due by 1/31 of following year
*If falls on Saturday, Sunday or legal holiday, have until following business day

10. How Much FUTA to Deposit
If $100 or more, must deposit
If less, can wait and add to next quarter, then if it’s $100 or more, must deposit
If never gets over $100, pay with Form 940 or 940-EZ at year end
Use Form 8109 coupon and deposit with an authorized depository

11. FUTA Reporting Requirements
Form 940 or Form 940-EZ, due by 1/31 next year
Except if only household employees, file Schedule H with individual 1040 tax return
Can file 940-EZ if:
Paid SUTA timely
Paid SUTA to one state
State is not in Title XII default
SUTA taxable wages = FUTA taxable wages
Can amend (check appropriate box above Part I)
Upon cessation of business, check “final return” box

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

13. Additional SUTA Information Reports
Status reports
initial registration with state as employer liable for SUTA
Separation Reports
informs state of separated employees - aids in determination of eligibility for benefits
Partial Unemployment Notices
notifies state and employees (who have had their hours cut back to part time) of potential eligibility for partial unemployment benefits

14. Unemployment Compensation Benefits
Each state individually qualifies and pays benefits to unemployed workers
Claimant must meet strict requirements including
ability and availability to work
proof of actively seeking work
Benefits vary by state; minimum and maximum amounts apply (average benefit = approximately 50% of gross wages)
Some states distribute additional amounts for each dependent the worker has in his/her home

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