Unemployment Insurance

1
Unemployment Insurance

• PT 3 7 PS 7

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

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
  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 consecutive) (current or preceding
  year)
• Employers paying domestic employees 1,000 or
  more in any calendar quarter (current or
  preceding year) incl. 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 employees
  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
• 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
  employees death
• Tips not reported by an employee

7
Exempt Employment Types

• Federal, state, local government employers incl.
  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

• Non immigrant 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 lt 1500 in 2010
• Alien agricultural workers under an H-2A visa
• Statutory nonemployees

8
FUTA Tax Rate / Wage Base
FUTA Tax rate is 6.2 Comprised of 6.0
permanent rate .2 Surcharge
Rate is applied to the First 7,000 of an
employees Covered wages
Tax is employer paid Some states have Employee
contributions Mandated.
The surcharge was due to expire at the end of
2009. However, the Worker, Homeownership and
Business Assistance Act of 2009 extended the .2
surcharge through June 30, 2011.
9
FUTA Tax Rate / Wage Base
If employers pay their state unemployment taxes
in full and on time A Credit up to 5.4 can be
taken Full credit allows for tax calculation to
be .8 Maximum paid 7.000 x .8 56.00
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 wages by .08 --up to 7,000 wage
base limit or 56.00 If amount for all employees
is 500 or greater then the deposit is due
respectively 1st quarter--- April 30 2nd
quarter-- July 31 3rd quarter October 31 If
under 500 then the amount need not be deposited
but carry over to the next quarter until the
threshold of 500 is met . The final quarter
when filing the 940 and annual liability is
reviewed Employer verifies the actual credit
percentage Adjusts if any difference
necessary Verifies 4th quarter liability if lt
500 then can be paid with the 940 by January 31
if gt 500 must be paid separately by January 31
11
Calculating the credit
Two types of credit scenarios are available 90
or normal credit- 5.4 Additional credit
utilize the lesser rate of the state Regardless
of which option used State must have certified
unemployment insurance program The credit
utilized cannot exceed the 5.4
12
90 or normal credit
To claim the full 5.4 credit all deposits due
must be made as required by law with the final
payment being no later than when filing the
940. 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 Annual Liability amount 1600.
Paid 1000 timely -- 600 late Timely state
payment 1000 x 100 1000. Late state
payment 600.00 x 90 540.00 Total credit on
the liability 1540.00
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 3.6The
  credit is 5.4 - 3.6 1.8 x FUTA taxable
  wages 

14
Credit reductionsState loans for UI

• States that have high unemployment, 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 then a .3
  reduction is imposed new credit rate to be 1.1.
• The credit reduction can be avoided should
  certain criteria be met as of November 10
• Solvency of the unemployment system
• Company ability to complete the payment timely
• No further necessity to borrow

15
Form 940
Annual filing form showing the company's FUTA
liability. Due date is January 31st following
the year of the liabilities. All forms must be
signed by an owner, president, vice president,
principal corporate officer, authorized
partner or fiduciary. Delivery must be made by
mail, delivery service or hand delivered to the
companys appropriate IRS office , assigned based
on where the business Is located, of if payment
is accompanying the form. 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
Amended 940 Resend the corrected form with the
box checked that is labeled Amended Statement
of reason for amendment Certification from state
for credit allowance or credit reduction If
overpayment is claimed Attach file 843Claim for
Refund and Request for Abatement Additional
notes Successor company needs to file and
check the box labeled Successor Employer Out
of Business need to file, pay and check the box
labeled Final Business closed or Not paying
wages
17
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 point Dollars posted
to the left and cents to the right of the decimal
Do not use dollar signs or decimalscommas are
optional Amounts on the form may be rounded If
rounding must be consistent Do not post 0(zero)
leave blank If applicable ensure to check the
necessary box
18
Line by Line
Part 1, Line 1a State abbreviation Part 1, Line
1b Multi-State employer Check box Must complete
Part 1 of Schedule A Part 1, Line 2 Credit
reduction status check box Must complete Part 2
of Schedule A Part 2, Line 3 Total payments
to all employees (all wages) Part 2, Line 4
Payments exempt from FUTA If amount on line 4
must check the applicable boxes 40a- 4e 4a-Fringe
benefits this includes qualified moving
expenses (talk to AP) 4b- Group Term Life 4c
Retirement / Pension 4d Dependent care 4e
Other agriculture, visas, workers comp,
etc Part 2, Line 5Total of payments made to each
employee in excess of 7,000 Part 2, Line 6
Subtotal Total of exempt payments (line 4
5) Part 2, Line 7 Total taxable FUTA wages
(line 3-6) Part2, Line 8 FUTA tax before
adjustments- (Line7 x.08)
19
Line by Line
Part 3, Line 9 If all FUTA wages paid were
exempt from SUTA Must pay those wages at full
6.2 ( line 7 x 5.4) Part 3, Line 10 If some
FUTA wages paid were exempt from SUTA or paid
late Complete the worksheet and transfer line 7
into line 10 on 940 Part 3, Line 11 If credit
reduction appliestransfer line 3 from Schedule A
to Line 11 on the 940 Part 4, line 12 Total
FUTA taxes after adjustments (add lines
8-11) Part4, 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
Line by Line
Part 5 Report your FUTA tax liability by
quarter only if line 12 is gt500 Part 5, Line 16
Report the FUTA tax liability for each
quarter This is the actual liability - not
deposit amounts Part 5, Line 17 - Total tax
liability for the year (add lines 16a- 16d 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
additional information about processing the
form Respond to certain IRS noticesmath errors
processing form Designee may not Receive
refunds Bind employer to anything Nor represent
the employer before the IRS Part 7 Sign
here--- Must be signed Paid preparers use only
Vendor that has completed the form
21
Schedule Aand 940 -V
Schedule A -- Multi-State employer and Credit
Reduction Information Part 1, Line 1 Check box
for every state in which you were required to pay
SUI tax Part 2 Line 2 Total Credit reduction
(add lines 2b,2d,2f,2h,2j) Remember -
Michigan is a credit reduction state for
2009 940-V Form 940 Payment Voucher Utilized
only when making payment with the 940. Credit
card payments or wire amounts can be made with
one of two authorized service providers, that
have obtained prior approval. Payments can be
made 24/7. Payments 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 if
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 Maximum of 25 If fraudulent return
amounts increase to 15 up to a maximum of 75
Failure to pay FUTA tax- addition to tax 5 if
the amount of tax required to be shown on the
return( reduced by credits) for each month or
fraction of month payment is late to a max of
25 An additional .5 on the amount if notice or
demand is issued and not Paid within 21 days (10
days if amount is at least 100,000) up to a max
of 25 If not paid percentage increases to 1
-- if not paid within 10 days- demand notice
issued with one day to pay or levy issued to
company signer.
23
Penalties for Noncompliance
Failure to file and pay the addition for
failure to file is reduced by .5 of unpaid tax
Assessed if both late deposit and late
filing Reasonable causeAffirmative statement
under penalty of perjury that the
employer exercised ordinary business care and
prudence and could still not pay or
file. Accuracy related penalty understating
the amount or mathematical errors result in a 20
penalty on the difference of the error Failure
to make timely deposits - if not deemed willful
neglect or approved as reasonable cause.
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
undepositted amount is paid within 6-15 days of
the due date 10 if the undeposited amount is
paid more than 15 days after the due date 15 of
the undeposited amount in not paid within 10 days
of notice
24
State Unemployment insurance
25
State Unemployment Insurance

• Applicable for employees not independent
  contractors
• Each state sets their own wage base and rate
• Employers conducting business or services in
  multiple states need to allocate 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 , etc
• Is there a Place of Direction or control? no
  localization, no office , results to their
  superior where direction will be communicated
• What is the employees state of residence? In
  rare cases where none of the aforementioned
  apply. .. The employees residential state is to
  be utilized.
• Reciprocal agreements allow for employers to
  choose one state for payment when the employee
  frequents between the states.

26
SUTA Taxable Wages
FUTA requires each states taxable wage base must
at least equal 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 dont ASSUME! States
can raise or lower their taxable wage base and
will usually notify employers of changes prior
to the beginning of the new tax year.
27
Contribution Rates Experience Rating
Contribution rate is the rate a employer applies
to its taxable payroll for each employee up to a
state determined wage base limit Experience
rating is the assessment of the contribution rate
based on the employers average annual taxable
wages and unemployment benefits charged.
28
Methods to determine Experience rate
Reserve Ratio primarily used account assigned
for company 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
used formula Benefit Ratio Benefits
charged / Total taxable payroll (the LOWER the
ratio, the lower the tax rate)
29
Methods to determine Experience rate
Benefit wage ratio method Used in Delaware an
Oklahoma Benefit wage ratio Benefit wages paid
/ Total taxable payroll (the LOWER the ratio,
the lower the tax rate) Payroll Stabilization
Alaska only state to utilize Fluctuation in
payroll from quarter to quarter either increases
or decreases the rate Surcharges may be
assessed if the state is experiencing high
unemployment, or has federal loan assistance.
The surcharge may or may not play a factor when
determining state credit against FUTA tax
liability, depending on the reason it was
established.
30
SUTA Dumping Prevention Act 2004

• Law created to eliminate the Shell scam of
  creating a bogus company and transferring its
  employees to the newly created company, with a
  lower tax rate, and thus paying less UI and
  allowing its companys higher rate to decrease.
• Law mandated each state put in place processes
  around the below four factors
• Failure to have these controls will prohibit the
  state to be certified under the FUTA Act.
• Mandatory transfers transfer between
  co-companies to benefit on UI
• Prohibited transfersnew company cannot utilize
  the lower rate, a new company rate must be
  provided.
• Penalties for SUTA Dumping must have meaningful
  civil and criminal penalties
• Procedures for identifying and processing SUTA
  Dumping

31
Noteworthy SUTA Laws

• Non- profit and public sector generally follow
  one of two options
• Direct reimbursementEmployer reimburses the
  state directly for any unemployment benefits
• Choose to become experience rated (rare)
• Employee contributions
• Three states have plans that enforce a minute
  amount be contributed from the employee
• Pennsylvania Alaska--- New Jersey ( PAN)
• Voluntary Contributions - 27 states allow
  additional payments into the fund account to
  lower the employers tax rate. States have strict
  guidelines and timetables and not all employers
  are eligible.

32
Joint or Combined Accounts
When employers have more than one subsidiary in a
state with separate FEINs, 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
33
Unemployment Benefit Process
State Dept of Labor places guidelines and
conditions around granting Unemployment
Benefits. DOL issued final ruling in 2007 to
limit states payment of unemployment
stating employee must be able and available to
work. In most states, the base period is the
first 4 calendar quarters out of the 5
preceeding the quarter during which the employee
first filed the claim for benefits. Part time
employees can get benefits as long as they are
not earning more than the weekly benefit
amount. Normal allowance is 26 weeks Stimulus
changed and extended the period.
34
Auditing and Challenging Benefit Claims
One way that companys can lower their
expenditures for unemployment is to conduct
account auditing and challenge claims in efforts
to alleviate some expenses. Heartless. .. But
businesses do it and some even pay for services
to be the bully.
35
Multiple Worksite Reporting

• Additional mandatory quarterly filing when an
  employer has multiple worksites.
• MWR (Multiple Worksite Reporting) breaks down the
  employment and wages by
• locality and industry.
• Filed to the State Employment Security agency.
• The Employment security agency in turn must file
  it with the Federal Bureau of Labor.
• Mandatory vs. Voluntary reporting 27 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 on worksite, or conducts multiple
  activities
• Has a total of at least 10 employees at all its
  secondary locations
• Magnetic filing and internet options can be
  obtained at the Bureau of Labor Statistics
  website and publications.

36
State Disability Insurance
California, Hawaii, New Jersey, New York, Rhode
Island, and Puerto Rico, have State Disability
Insurance. Paid family leave in California
began in 2004 Family leave insurance in New
Jersey benefits available as of July 1,
2009 Contributions SDI is funded by both the
employer and the employee.
37
Look for many changes for 2011