Ch 5

Report
Bernard J. Bieg and Judith A. Toland
PAYROLL
ACCOUNTING 2014
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UNEMPLOYMENT
COMPENSATION TAXES
Chapter 5
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service or otherwise on a password-protected website for classroom use.
Learning Objectives
Describe basic requirements for
classification under Federal Unemployment
Tax Act (FUTA)
2. Define taxable wages under FUTA
3. Compute FUTA and credit against it
4. Describe how experience-rating system is
used in determining state unemployment
compensation (SUTA)
5. Complete reports required by FUTA
6. Describe types of information reports
required under SUTA
1.
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service or otherwise on a password-protected website for classroom use.
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
LO-1
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service or otherwise on a password-protected website for classroom use.
FUTA and SUTA (cont.)

SUTA
◦ State 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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service or otherwise on a password-protected website for classroom use.
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 512 and 5-13))

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service or otherwise on a password-protected website for classroom use.
Taxable Wages for FUTA/SUTA
(cont.)

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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service or otherwise on a password-protected website for classroom use.
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)*

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service or otherwise on a password-protected website for classroom use.
FUTA Rates (cont.)
Therefore gross
 6.0% less 5.4% credit
= 0.6% net FUTA

 *Even if experience rating allows employer to pay a
lower rate than 5.4%
LO-3
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service or otherwise on a password-protected website for classroom use.
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%
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service or otherwise on a password-protected website for classroom use.
Credits Against FUTA Tax
(cont.)
◦ 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 (0.3% per year beginning the
second year after the advance)
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service or otherwise on a password-protected website for classroom use.
SUTA Laws & Rates
Each employer’s rate based upon
experience rating (see next slide)
 New employer’s 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

LO-4
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
SUTA Laws & Rates (cont.)
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

LO-4
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service or otherwise on a password-protected website for classroom use.
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

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service or otherwise on a password-protected website for classroom use.
How to File Form 940 (cont.)
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

LO-5
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service or otherwise on a password-protected website for classroom use.
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

LO-5
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service or otherwise on a password-protected website for classroom use.
FUTA Deposit Overview (cont.)
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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service or otherwise on a password-protected website for classroom use.
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 it’s $500 or more, must deposit
 If never gets over $500, pay with Form
940 at year-end

LO-5
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service or otherwise on a password-protected website for classroom use.
How Much FUTA to Deposit
(cont.)
Use voucher 940V
 Penalties apply for failing to file 940
return, pay
 FUTA taxes when due and/or make timely
deposits

LO-5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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

LO-6
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
SUTA Deposit & Reporting
Overview (cont.)

SUTA quarterly contribution report
generally shows the following
◦ Each employee’s 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
LO-6
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.

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