UNEMPLOYMENT

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CHAPTER 5
Payroll Accounting 2013 Bernard J. Bieg and
Judith A. Toland

• UNEMPLOYMENT
• COMPENSATION TAXES

Developed by Lisa Swallow, CPA CMA MS
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Learning Objectives

• Describe basic requirements for classification
  under Federal Unemployment Tax Act (FUTA)
• Define taxable wages under FUTA
• Compute FUTA and credit against it
• Describe how experience-rating system is used in
  determining state unemployment compensation
  (SUTA)
• Complete reports required by FUTA
• Describe types of information reports required
  under SUTA

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FUTA and SUTA

• FUTA
• Federal Unemployment Tax Act
• Passed as part of Social Security Act of 1935
• Federal law that imposes an employer tax
• Required for administration of federal and state
  unemployment insurance programs
• SUTA
• State Unemployment Tax Act
• Different law in each state
• Funds used to pay benefits and administer program
  at individual states level
• In current economic situation, unemployment
• insurance programs are being stretched very thin!

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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 (Figure 5-1 (pages 5-12 and 5-13))
• Wages include
• Bonuses, 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

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FUTA Rates

• FUTA rate 6.0 of first 7,000 of gross wages
  for each employee per year
• 5.4 credit against FUTA (allowed for SUTA
  taxes)
• Therefore gross 6.0
• less
  5.4 credit
• .6 net FUTA
• Even if experience rating allows employer
• to pay a lower rate than 5.4

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Credits Against FUTA Tax

• To get full 5.4 SUTA credit, employer must have
• Made SUTA contributions on timely basis - on or
  before due date for filing
• Note even if employer pays into more than one
  fund, credit still limited to 5.4
• Been 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 11/10/12)

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SUTA Laws Rates

• Each employers rate based upon experience rating
  (see next slide)
• New employers pay an initial contribution rate
  that applies for specific period of time
• Some states utilize reserve-ratio formula to
  lower contributions based on low risk of
  unemployment
• Nonprofits have option to reimburse state for
  actual amount of unemployment benefits paid
  instead of paying percentage
• SUTA Dumping Prevention Act mandates that states
  enact laws to stop businesses from lowering their
  unemployment rates through creating new entities

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How to File Form 940

• Form 940 due by January 31 of next year
• Or if timely deposits have been made, have until
  February 10 to file
• Need 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 940
• Can e-file after submit electronic IRS letter of
  application
• When filing a corrected form, mark the Amended
  box and include explanation as to why an amended
  return is filed
• A final return must be filed in year company
  ceases doing business

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FUTA Deposit Overview

• Deposit quarterly - but only if cumulatively over
  500
• Required to deposit federal taxes electronically
  unless employer has 2,500 or less in quarterly
  tax liabilities
• Due 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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How Much FUTA to Deposit

• If 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 its 500 or more, must deposit
• If never gets over 500, pay with Form 940 at
  year-end
• Use voucher 940V
• Penalties apply for failing to file 940 return,
  pay
• FUTA taxes when due and/or make timely deposits

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SUTA Deposit Reporting Overview

• SUTA requirements vary widely by state
• In the states where EE also pays into SUTA, both
  EE and ER taxes deposited together
• SUTA quarterly contribution report generally
  shows the following
• Each employees gross wages and taxable SUTA
  wages (wage information)
• Contribution rate multiplied by taxable SUTA
  wages
• Amount of required payment
• Usually includes wage information report per
  employee

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