COMPENSATION TAXES Developed by Lisa Swallow CPA CMA MS Payroll Accounting 2012 Bernard J Bieg and Judith A Toland Learning Objectives Describe basic requirements for classification under Federal Unemployment Tax Act FUTA ID: 830167
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CHAPTER 5
UNEMPLOYMENT COMPENSATION TAXES
Developed by Lisa Swallow, CPA CMA MS
Payroll Accounting 2012
Bernard J.
Bieg
and Judith A.
Toland
Slide2Learning ObjectivesDescribe basic requirements for classification under Federal Unemployment Tax Act (FUTA)
Define taxable wages under FUTACompute FUTA and credit against itDescribe how experience-rating system is used in determining state unemployment compensation (SUTA) fundsComplete reports required by FUTA
Describe types of information reports required under SUTA
Slide3FUTA and SUTAFUTA
Federal Unemployment Tax ActPassed as part of Social Security Act of 1935Federal law that imposes an employer tax
Required for administration of federal and state unemployment insurance programsSUTAState Unemployment Tax Act
Different law in each state
Funds used to pay benefits and administer program at individual state’s level
In current economic situation, unemployment
insurance programs are being stretched very thin!
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Slide4Taxable Wages for FUTA/SUTATaxable FUTA wage base caps at $7,000/year
*Taxable SUTA wage base caps at different amount in each state (Figure 5-1 on pages 5-10 and 5-11)Wages includeBonuses, advances, severance pay
Stock compensation - fair market value Tips
Retroactive wage increases
Complete list of taxable wages found on pages 5-7 and 5.8
*Discussion as to new wage base and rate
being discussed as of print time
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Slide5FUTA Rates
FUTA rate = 6.2% of first $7,000 of gross wages for each employee per year5.4% credit against FUTA (allowed for SUTA taxes)*Therefore gross 6.2%
less 5.4% credit = .8% net FUTA
*Even if experience rating allows employer
to pay a lower rate than 5.4%
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Slide6Credits Against FUTA Tax
To get full 5.4% SUTA credit, employer must have done the followingMade SUTA contributions on timely basis - on or before due date for filingBeen located in a state that is not in default on their Title XII advances Title XII of the Social Security Act lends funds to states so they may provide unemployment compensation funds from federal government
Credit is reduced (.3% per year beginning the second year after the advance – for example, Michigan subject to additional rate if loans not repaid by 11/10/10)
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Slide7SUTA Laws & RatesEach employer’s rate based upon experience rating (see next slide)
Some states utilize reserve-ratio formula to lower contributions based on low risk of unemploymentNonprofits have option to reimburse state for actual amount of unemployment benefits paid instead of paying percentageSUTA Dumping Prevention Act mandates that states enact laws to stop businesses from lowering their unemployment rates through creating new entities
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Slide8How to File Form 940Form 940 due by January 31 of next year
Or if timely deposits have been made, have until February 10 to fileNeed to attach Schedule A (Form 940) if multi-state employer or have SUTA credit reduced Filed with IRS District Center in which business is located – thereafter IRS will send preaddressed Form 940Can e-file after submit electronic IRS letter of application
A final return must be filed in year company ceases doing businessLO-5
Slide9FUTA Deposit Overview
Deposit quarterly - but only if cumulatively over $500Due dates are as follows* 1/1 - 3/31 deposit by 4/30
4/1 - 6/30 deposit by 7/31 7/1 - 9/30 deposit by 10/31 10/1 - 12/31 deposit by 1/31
*
If falls on Saturday, Sunday or legal holiday,
have until following business day
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Slide10How Much FUTA to DepositIf $500 or more, must deposit by last day of month following close of quarter
If less, can wait and add to next quarter, then if it’s $500 or more, must depositIf never gets over $500, pay with Form 940 at year-endUse voucher 940-V
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Slide11SUTA Deposit & Reporting OverviewSUTA requirements vary widely by state
In the states where EE also pays into SUTA, both EE and ER taxes deposited togetherSUTA quarterly contribution report generally shows the followingEach employee’s gross wages and taxable SUTA wages (wage information)Contribution rate
x taxable SUTA wagesAmount of required paymentUsually includes wage information report per employee
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