Accounting 150 Chapter 5
Maximun SUTA rate?
5.4% Against FUTA
What is the FUTA NET rate?
6% - 5.4% = .6%
What is the FUTA rate?
6% of first $7000 of gross wages for each employee per year
What are pooled-fund laws?
Cost of unemployment benefits spread among all employers in a state
If contribution not made on timely bases, what happens to the employers SUTA credit?
Credit is limited to 90% of tax
When the reserve account increases the SUTA rate.......
Decreases
Who is generally excluded from coverage under SUTA?
Employers
T/F Americans working abroad are not qualified to be covered by FUTA or SUTA
False they are covered
T/F The wage determination for SUTA is the same in every state
False; Different laws in different states regarding wages determination for SUTA
Interstate reciprocal agreements are:
Fashioned to prelude an employer from having to pay into multiple states
What does FUTA stand for?
Federal Unemployment Tax Act
In 2019, an employer's general ledger showed $805,000 of wage expense. Of this amount, $2,000 will be paid on January 5, 2020. Wages paid in excess of 7000 per employee in 2019 = $459,000. The gross FUTA tax imposed on the employer is:
Gross FUTA tax = 6% x Taxable wages Taxable wages = $805,000 - $12,000 - $459,000 = $334,000 $334,000 x 6% = $20,040
FUTA imposes tax on who based on what?
Imposes tax on employers based on wages paid for covered employment
Why was the FUTA passed?
To fund unemployment compensation program as ordered by Social Security Act of 1935
What piece of data would be irrelevant to the calculation of the reserve ratio used to determine a state's experience rating?
Number of employees
How much is credit reduced per year beginning the second year after the advance
Reduced 0.3%
Employees include....
Regular, part-time, and temporary workers Also individuals who are on vacation or on sick leave
reserve ratio formula
reserves/deposits
What are 5 wages exempt from FUTA?
1. Advances or reimbursement business expenses 2. Retirement Pay 3. Educational Assistance Payments 4. Meals and lodging furnished to employee if for employer's benefit 5. Strike benefits paid by union to its members
Who all has enacted unemployment compensation laws approved by Social Security Administration?
1. All states 2. Puerto Rico 3. The Virgin Islands 4. The District of Columbia
What do wages include?
1. Bonuses, advances, commissions 2. transfer of stock from employer to employee 3. Tips reported to the employer by the employee 4. Retroactive wage increases
What are 4 specific exemptions to being an employee?
1. Casual laborers 2. Partners and directors 3. Foreign Students and exchange visitors 4.Students enrolled full time in an internship program
What are the 2 qualifications for benefits?
1. Claimants must have earned a minimum base period wage 2. Meet other requirements as established by the individual state
Employers are liable to pay tax if one of which two tests applies?
1. Pays wages of $1500 or more during any calendar quarter in current or previous calendar year 2. Employs one or more persons, on at least some portion of one day in each of 20 or more calendar weeks in current or preceding taxable year
To prevent duplicate contributions in the services of interstate employees, their coverage is decided by applying what 4 things?
1. Place where the work is localized 2. Location of base of operations 3. Location of place from which operations are directed or controlled 4. Location of employees residence
What are the 3 requirements to be exempted from SUTA? ̊̈ (ABC Test)
1. The worker is free from direction 2. The work performed outside usual course of business 3. The worker is customarily engaged in an independent trade or business
What does the SUTA finance for each state?
A trust fund
What type of payment is exempt from the unemployment taxable wage base?
A union's payment to it's striking members
The wage base for unemployment compensation taxes are:
All wages actually paid or constructively paid
How would an employer terminate liability?
An employer must file application by the date set by the state's law
What do new employers have to pay in regards to SUTA?
An initial contribution rate that applies for specific period of time
Moon Honey Yoga Studio LLC is a new employer. They did not reach their 20th week of employment until August 25, 2019. Therefore they are liable:
Are liable for FUTA beginning Jan 1, 2019. (As soon as the employer meets the 20 weeks of employing one or more persons, the organization becomes liable for the entire year)
If employers make voluntary contributions to state funds, how could that affect the SUT rate?
It could possibly reduce the rates
How does lower employment turnover affect the state unemployment tax rate?
It lowers the tax rate
What is Title XII of the Social Security Act?
Lends funds from federal government to states so they may provide unemployment compensation funds
If an employee has more that one employer in a year, how would their wage base be applied?
Separately to each of those employers
Experience rating reflects what?
Stability of employer's employment history
What does SUTA stand for?
State Unemployment Tax Act
Many states use what test to determine exemption from SUTA
The "ABC Test"
If the employer's principle place of business cannot be determined what state would be the state of coverage?
The State that is the state where the incorporation or owner's residence is located
Funds collected by the FUTA is used to pay what?
The cost of administration of federal and state unemployment insurance programs
Who determines the amount of voluntary contribution necessary to obtain a lower contribution rate?
The employer
How would an employer get the full 5.4% SUTA credit?
The employer must have made SUTA contributions on or before due date for filing
What does the taxable FUTA wage base include?
The first $7000 of wages paid during any calendar year
T/F Employees covered under FUTA are generally covered by SUTA as well
True
T/F Some states have higher wage base than the federal amount?
True
A reciprocal agreement is an agreement whereby:
Two states in which the ABC test cannot be concussively applied to determine exclusion from SUTA coverage can forge an alternative
How long does an employer remain liable to a terminated employee?
Two years
