Unemployment Insurance

Section 7

Who must pay FUTA and who is exempt FUTA tax rate and wage base Depositing and paying FUTA tax State credits against FUTA tax liability Reporting FUTA tax on Form 940 Penalties for FUTA Noncompliance Summary of State Unemployment Facts

Federal Unemployment Tax Act of 1939

Provides income for terminated employees while they seek other employment

Jointly funded program at the Federal and State level from employer contributions

Funding is used to pay for the various unemployment programs developed and administered by the States

Covered EmployersEmployers/ Farm Employers/ Domestic Employers Page 7-2

Exempt Employers Federal, State & Local governments Religious, Charitable or Educational Organizations

Indian Tribes

Work Performed for: Federal, State, Local Gov’t Employer On a foreign ship outside of U.S., full-time students for

the school where they attend classes or organized camp.

Foreign gov’t or int’l organization (NATO, UN) Student nurses or hospital interns, commission only

insurance agents, newspaper delivery under 18, nonimmigrant aliens working under FJM or Q visas.

Work performed by: a child under 21 for parents, inmate of penal institution, election worker pd less than $16,00 in 2014, alien agricultural worker on H-2A

Statutory nonemployees

6.0% Permanent Tax Rate

$7,000.00 Wage Base (Gross minus Flex)

5.4% Credit (if employer pays state unemployment taxes in full and on time)

.006 or .6% of the 1st $7000.00 in annual taxable wages ($42.00)

Deposit Due Dates – Last day of the month following the end of the quarter.

Deposit threshold $500, if less than $500 in the first 3 quarters deposit all at end of year. Previous quarter is rolled into next.

Final Quarter liability – Form 940

90% or “normal” credit (6% * 90% = 5.4% credit)

All state taxes must be paid by Form 940 deadline

The State must make timely payments of all interest due on loans!

Amounts must “actually” be paid.

If Company is “Exempt” from State UA, then must pay full 6% for FUTA

Form 940 - Annual Return- 1/31

Automatic Extension- 2/10 – if paid all tax on time

How to correct a 940 - Amended

Be aware of States that failed to pay back the loan amount. *FUTA CREDIT REDUCTION * This additional FUTA is paid through 940 form at year end.

Late filing of Form 940 - 5%

Failure to pay FUTA tax - .5%

Paying FUTA late – 2% of tax within 5 days

5% of tax within 6-15

10% of tax after 15 days

15% after 10 days of IRS Notice

Mandated EFTPS depositors – if not paid by EFTPS there is a 10% penalty

Coverage – where employee’s perform work. Work in multiple states? – 4 factors

Are services localized, base of operations, place of direction or control, state of residence(rare)

Taxable Wage Base – usually same as FUTA MI = Gross($9,500 wage base) Contribution rates (page7/24)

Reserve Ratio Benefit Ratio Benefit Wage Ratio Method

SUTA dumping! State Disability Insurance – CA, HI, NJ, NY, RI,

PR

SUTA dumping! Nonprofit and public sector employees

Direct reimbursement

Voluntary Contributions – help improve employers reserve ratios to help with rates.

Reporting Requirements: Total wages paid, taxable wages paid, nontaxable

wages paid, number of employees each month, gross wages for each employee, taxable/nontaxable wages breakdown for each employee, number of weeks worked by each employee.

Questions ?

Break

(EIN) Employer Identification Numbers (Form SS-4)

Deposit Requirements (monthly/semi-weekly)

Look back Period 12-month period ending the preceding June

2014 = 7/1/2012 - 06/30/2013 Look back period $50K or less – monthly

$50K – semi-weekly*** Next Day Rule = $100,000 Different Rules for Small Employers

Employers with $50K or less in employment tax liability during the look back period.

Deposit is due by the 15th of the following month it is withheld.

Employers with more than $50K in employment tax liability during the look back period.

For wages paid on Wed, Thur, Fri deposit must be made by following Wednesday

For wages paid on Saturday, Sunday, Mon and Tue deposit must be made by following Friday

Employers with tax liability that reached $100K on any day during a monthly or semiweekly deposit period MUST make a deposit by the close of the next business day.

EFTPS (Required in 2011) Shortfall Rule = 98% of tax due Penalties – Failure to Deposit Timely

2% (5 days) 5% (6-15 days) 10% (> 15 days) 15% (10 days after IRS delinquency)

Employers cannot shift deposit liability to payroll service provider, reporting agent or accountant. Employer’s responsible to IRS for any shortfalls

or penalties.

Form 8655 – Reporting Agent Authorization Does not relieve the client employer of the

responsibility or liability for failing to ensure all returns are filed timely and deposits are made timely.

Employment Tax Return form 941 and 941 Schedule B

Small Employers (<$1000) – Form 944 Non-payroll withholding form 945 and 945A Agricultural reporting form 943 and 943A Payroll outside the US forms - 941PR and

941SS Penalties – Late Return - 5% of tax up to max

25% Forms 941-X – Adjustments to Form 941 Form 941 –M Employers Monthly Federal Tax

Return Form 843 Claim for Refund an request for

Abatement (interest, additions and penalties)

Form W-2 Form W-3 (Summary for Paper W-2’s) Form 1099 Series (Misc & R) Form 1096 (Summary for 1099’s) Penalties = $30 within 30 days

$60 between 30 days and 8/1

$100 after 8/1 up to $1.5M

Form W-2C Not needed for incorrect address

Form W-3C

Form 8655 – Reporting Agent Authorization

Form 2848 – POA and Declaration of Representative

Form 2678 – Employer/Payer Appointment of Agent – Needs IRS approval (Agent ‘could’ be responsible)

Form SS4 (EIN Application) 941, 941 Schedule B 941-X 943, 943A, and 945, 945A 1099-MISC, 1099-R, 1096 W-2, W-3, W-2C, W-3C

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Other Deductions from Pay

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Record Keeping &

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