UNEMPLOYMENT

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CHAPTER 5
Payroll Accounting 2006 Bernard J. Bieg

• UNEMPLOYMENT
• COMPENSATION TAXES

Developed by Lisa Swallow, CPA CMA MS
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FUTA and SUTA

• FUTA
• 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 states level

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Who is Covered under 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

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Employees Covered under FUTA

• General rule is everyone is considered an EE if
  common-law relationships exists
• Also included
• Drivers who distribute food/beverage
• Traveling salespeople specific situations
• 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

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Who is Covered under SUTA

• Employees generally covered under SUTA if covered
  under FUTA
• Many states apply ABC test for SUTA exclusion
• Is the person free from control/direction
• Is work performed outside usual course of
  business
• Is person usually engaged in an independent trade
  or business

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Interstate Employees and SUTA

• 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 exist)
• employees 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

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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 (pp 5.13 - 5.15)
• Wages include
• bonuses, advances, severance pay
• stock compensation
• fair market value
• tips
• complete list (pp 5.8 - 5.9)

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Specifically Exempt Wages for FUTA

• Workers compensation payments
• Retirement pay
• Educational assistance payments
• if part of nondiscriminatory plan
• Meals and lodging
• if for employers benefit
• Strike benefits
• Complete list on page 5.9

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FUTA Rates

• FUTA 6.2 of first 7,000 of gross wages for
  each employee per year
• .2 surcharge expires in 2007
• 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

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FUTA Deposit and Reporting Overview

• Deposit quarterly
• But only if cumulatively over 100
• 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
• Form 940 due by 1/31 of following year
• Filed annually
• If falls on Saturday, Sunday or legal holiday,
  have until following business day

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FUTA Reporting Requirements

• Form 940 due by 1/31 next year
• Revised 2005 combines 940 and 940-EZ
• Only need to complete specific sections of 940 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

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How Much FUTA to Deposit

• If 500 or more, must deposit
• 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 Form 8109 coupon and deposit with an
  authorized depository

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SUTA Deposit and Reporting Overview

• SUTA requirements vary widely by state
• In some states, EE withholding is required for
  SUTA
• in that case both SUTA for both EE and ER
  deposited together
• SUTA quarterly contribution report generally
  shows
• each employees gross wages and taxable SUTA
  wages (wage information)
• contribution rate x taxable SUTA wages
• amount of required payment
• usually includes wage information report per
  employee

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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