Payroll Ch. 5 - Unemployment Compensation Taxes

Under FUTA, only the first ______________ of remuneration pay are taxable wages

$7000

Under the Interstate Reciprocal Coverage Arrangement, the services of a worker can be covered in the state of the election of the employer as long as one of three factors exists. What are those three conditions?

- the employee must be working for the employer - the employee must be regularly staying in that state - the employer's business must be established in that state

How does an employer file an amended Form 940?

- the employer files the amended form of 940 (Employer's Annual Federal Unemployment) by completing a new Form 940 for the year amended - employer should mark the "amended" box on form 940 with the correct figures - the form should be duly signed & reason for firing an amended return should be attached with the return filed

Identify generally what is defined as taxable wages by the Federal Unemployment Tax Act...

...

ABC test to determine exclusion from coverage. All three requirements must be met.

1. free from control or direction 2. performed outside usual course of business 3. customarily engaged in an independent trade or business

What two alternative tests are applied to a business in order to judge whether it is an "employer" and therefore subject to the FUTA tax?

1. pays at least $1,500 as wages during any calendar quarter in the current or preceding calendar year 2. employs at least one person during some portion of one day in each of 20 or more calendar weeks during the current or preceding taxable year

An employer, because of a favorable experience rating, is permitted to pay a state contribution at a reduced rate of 1.5 percent. What percentage of taxable wages must be paid in the aggregate to the federal and state governments?

2.10%

(FUTA) the employer's tax rate is ___________________ of the first $7,000 wages paid each employee during the calendar year

6%

Compute the federal unemployment tax, the credit against the tax, and any credit reductions that might apply.

6.0 percent of first $7,000 of earnings − 5.4 percent credit (for SUTA taxes paid) = 0.6 percent net FUTA rate. Experience ratings set SUTA rate for each employer based on past employment record.

(FUTA) If an employer is late in paying the state contribution, the credit is limited to _______________ of the amount of the deposit.

90%

What are the options for paying an amount with the filing of Form 940? (under $500)

?

FUTA (Federal Unemployment Tax Act)

A payroll or employment tax paid solely by the employer based on the salary, usually around .6% to cover the unemployment insurance (UI) and job service programs, pay one-half of the cost of extended unemployment benefits, and provides for a fund from which states may borrow

What are two situations in which an employer could be liable for a net FUTA tax greater than 0.6 percent?

A. An employer is tardy in paying the state contributions.B. An employer is located in a state that has not met the repayment provisions of Title XII advances

Complete the reports required by the Federal Unemployment Tax Act.

Annual Form 940 to be completed by January 31 of the following year. Taxes paid quarterly (if liability each quarter is over $500). Paid electronically.

In 2018, Which state had the highest taxable wage base for the SUTA tax?

Arizona 0.05% - 12.76% on first $7,000

In 2018, Which state had the widest range of SUTA tax rates for employers?

Arizona?

In 2018, Which state paid the highest weekly maximum benefit (excluding dependency allowances) to qualified unemployed workers?

Arizona?

(Contribution) - (Paidout) = ?

Balance with Agency

What is the purpose of Title XII advances?

Borrowings from federal government to pay unemployment compensation benefits

How often do employers file wage and contribution reports with their states?

Contribution reports and wage information reports are usually filed together for each state on a quarterly basis.

Describe the basic requirements for an individual to be classified as an employer or an employee under the Federal Unemployment Tax Act.

Employer—pays wages or $1,500 or more in a quarter or employs 1 or more in 20 or more weeks. Employee—legal common-law relationship + agent/commission driver + travelling/city salesperson. Interstate employees—where localized, base of operations, direction or control, or residence.

T or F: The FUTA tax is used for the payment of weekly benefits to unemployed workers.

False is NOT used*

Identify generally what is defined as taxable wages by the Federal Unemployment Tax Act.

First $7,000 of each employee's earnings is taxed. Fairly uniform under state laws.

What special steps must be taken when completing Form 940 for a company that has ceased operations during the year?

Form 940 is used to report annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. When an employer ceases to operate its business, it must file Form 940 for the portion of the last calendar year, it operated its business and it needs to indicate that no future returns will be filed. This is indicated by checking the "Box D" in the upper right hand corner of page 1. A statement also needs to be attached by the employer with following information: The location where required records will be kept.Person responsible for keeping the records.The name and address of the purchaser of the business or the fact that there was no purchaser or that the purchaser's name is unknown.

What condition would make a household employer a covered employer under FUTA?

Household covered employers is an individual, a private home, a college club, a local fraternity, or a sorority club, who pays for the household services, an amount of $1,000 or more as wages, during any quarter of the present or preceding year. If one satisfies the above said condition as per FUTA, they become a household employer

Charlie Carlson is a full-time student at Wenonah College and works part time in the school's maintenance department. Must the college pay a FUTA tax on Carlson's earnings?

If a regular full-time student provides services to the same college or school where they are enrolled in, then those services are exempted from FUTA Therefore as per Federal Laws, the college need not pay FUTA tax for the student who has provided his services as a part-time job

Describe the types of information reports under the various state unemployment compensation laws.

Information reports, status reports, contribution reports, and wage information reports. Quarterly contribution reports filed by end of the month following the quarter-end. Taxes paid with reports.

Taxable or Nontaxable Wages? Advances or reimbursement of ordinary and necessary business expenses incurred in the business of the employer

Nontaxable

Taxable or Nontaxable Wages? Allowances made to an individual by a prospective employer for expenses incurred in connection with interviews for possible employment

Nontaxable

Taxable or Nontaxable Wages? Bonuses under a supplemental compensation plan paid upon retirement, death, or disability of an employee

Nontaxable

Taxable or Nontaxable Wages? Caddy fees

Nontaxable

Taxable or Nontaxable Wages? Commissions paid to insurance agents and solicitors who are paid solely by commission. Such persons are classified as independent contractors, not employees

Nontaxable

Taxable or Nontaxable Wages? Courtesy discounts to employees and their families

Nontaxable

Taxable or Nontaxable Wages? Educational assistance payments to workers

Nontaxable

What arguments could be made for raising the upper limits of the SUTA tax rates?

Raising the upper limit for SUTA tax rates would help in providing more funds to government sponsored programs such as unemployment insurance program. Additionally the SUTA taxes credit can be taken against FUTA taxes thus raising SUTA tax rates would result in more tax accumulation. Due to the current economic slowdown, many government-sponsored programs,including the unemployment insurance programs are fund constrained. The gap between the benefits offered to employees and funds sourced from the employers is widening consistently. So to pump more funds into the programs, the SUTA tax rate needs to be raised.

(Balance with Agency) / (Avgerage Payroll) = ?

Reserve Ratio

Describe how an experience-rating system is used in determining employers' contributions to state unemployment compensation funds.

Reserve-ratio formula determines tax rate for each employer (contributions - benefits paid/average payroll). Some states allow voluntary contributions in order to lower SUTA tax rate.

Taxable or Not? Advance Payment for work to be done in the future

Taxable

Taxable or Not? Bonuses as remuneration for services.

Taxable

Taxable or Not? Cash and noncash prizes and awards for doing outstanding work, for exceeding sales quotas, or for contributing suggestions that increase productivity or efficiency.

Taxable

Taxable or Not? Christmas gifts, excluding noncash gifts of nominal value.

Taxable

Taxable or Not? Commissions as compensation for covered employment.

Taxable

Taxable or Not? Contributions by an employer to a supplemental unemployment individual-account plan to which the employee has a fully vested and nonforfeitable right.

Taxable

Taxable or Not? Dismissal payments.

Taxable

Taxable or Not? Employer contributions to cash or deferred arrangements to the extent that the contributions are not included in the employee's gross income.

Taxable

Taxable or Not? Idle time and standby payments.

Taxable

Taxable or Not? Payment by the employer of the employee's FICA tax or the employee's share of any state unemployment compensation tax without deduction from the employee's wages.

Taxable

Taxable or Not? Payments representing compensation for services by an employee paid to the dependents after an employee's death. Payments in the nature of a gratuity rather than compensation for services are nontaxable. Any payments made by an employer to an employee's estate or to the employee's survivors after the calendar year in which the employee died are excluded from the definition of wages and thus may not be taxed.

Taxable

Taxable or Not? Payments to employees or their dependents on account of sickness or accident disability. These payments are not taxable after the expiration of six months following the last calendar month in which the employee worked. Payments for work missed due to pregnancy are not classified as taxable wages during the first six months of absence.

Taxable

Taxable or Not? Payments under a guaranteed annual wage plan.

Taxable

Taxable or Not? Retroactive wage increases.

Taxable

Taxable or Not? Tips, including charged tips, reported by the employee to the employer.

Taxable

Taxable or Not? Transfer of stock by an employer to the employees as remuneration for services. (The fair market value of the stock at the time of payment is the taxable base.)

Taxable

Taxable or Not? Vacation pay.

Taxable

When and how does an employer pay the FUTA taxes?

They deposit the tax quarterly or if their liability is less then $500 then it is deposited annually. Then file an annual form. Employers deposit FUTA taxes by using electronic funds transfer (EFT). Employers can also arrange a tax professional, financial institution, or payroll service to make EFT deposits.

funds borrowed from the federal government by states that, due to financial difficulties, cannot pay their unemployment compensation benefits.

Title XII advances

T or F: Each state designs their own unemployment program in conformity with the guidelines of the federal requirements?

True

Can the owner of a small business receive unemployment compensation? Explain.

Yes, only if the owner pays itself a salary or wages in addition to receiving dividends

What is a separation report?

a standard form used by a State agency to demand a report from a base period employer regarding the earnings earned by the claimant and ground(s) for severance from employment.

SUTA (State Unemployment Tax Act)

a tax levied in most states to raise funds to pay unemployment benefits

dismissal payments

amounts paid by employers to workers who have been separated from employment; also known as payments in lieu of notice, separation pay, or terminal leave pay.

remunerations that are credited to the account of, or set apart for, an employee so that they may be drawn upon at any time, even though they are not actually possessed by the employee.

constructively paid

quarterly tax return filed with the state by the employer that provides a summary of the wages paid during the period and shows the computation of the tax or contribution.

contribution report

amounts paid by employers to workers who have been separated from employment; also known as payments in lieu of notice, separation pay, or terminal leave pay.

dismissal payments

method by which employer contribution payments may be adjusted because of a favorable employment record; also known as merit rating.

experience rating

Employers pay both a _______________ & ________________ unemployment tax

federal; state

How are pretax contributions by employees into cafeteria plans presented on Form 940?

included in total payments on form 940 & deducted as exempt payments

an individual who works in more than one state.

interstate employee

see experience rating.

merit rating

(FUTA) to obtain the maximum credit of 5.4% against the federal tax, the employer

must make the state contributions on or before the due date for filing the annual return under FUTA

those whose reserve accounts have been charged for more benefits paid out than contributions paid in to the fund.

negative-balance employers

Taxable or Nontaxable Wages? Payments made by an employer under a plan established by the employer for health, accident, or life insurance, or retirement benefits on behalf of the employees or their dependents.

nontaxable

Taxable or Nontaxable Wages? Retirement pay

nontaxable

Taxable or Nontaxable Wages? Value of meals and lodging furnished employees for the convenience of the employer.

nontaxable

Taxable or Nontaxable Wages? Workers' compensation payments.

nontaxable

Taxable or Nontaxable Wages? strike benefits paid by union to its members

nontaxable

Taxable or Nontaxable: Reimbursement of an employee's moving expenses if, at the time of payment, it is reasonable to believe that the employee will be entitled to a deduction for those expenses at the time of filing his or her federal income tax return.

nontaxable

employment by the individual's regular employer on a reduced scale because of lack of work.

partial unemployment

forms completed by the employer and given to partially unemployed workers so that supplemental unemployment benefits may be obtained.

partial unemployment notices

unemployment insurance system wherein the cost of unemployment benefits is spread among all employers in a particular state.

pooled-fund laws

those who have built up a balance in their reserve accounts (contributions paid in less benefits charged).

positive-balance employers

contribution report

quarterly tax return filed with the state by the employer that provides a summary of the wages paid during the period and shows the computation of the tax or contribution.

agreements between states to provide unemployment insurance coverage and payment of benefits to interstate workers.

reciprocal arrangements

experience-rating plan used in most states, based on: Contributions − Benefits Paid ÷ Average Payroll.

reserve-ratio formula

report that provides a wage and employment record of the separated employee and the reason for leaving.

separation report

the social security act of 1935 ordered every state to

set up an unemployment compensation program

initial statement filed by new employers with their state unemployment office, which determines their liability to make contributions into the state unemployment compensation fund.

status report

What is an employer required to do in order to obtain the maximum credit of 5.4 percent against the FUTA tax?

the employer must make state contribution on or before the due date for filing the annual tax return form i.e., on or before the due date of 31st January, 2013. If not paid within the due date, only 90% of eligible credit on the contribution is allowed.

To what extent does FUTA coverage extend to services that a citizen of the United States performs for an American employer outside the United States?

the main place of the employer's business in all states except Canada or any adjoining country related to the U.S. unemployment agreement

payments deliberately made by employers to their state funds in order to qualify for a lower unemployment compensation tax rate.

voluntary contributions

statements filed by the employer, usually with the quarterly contribution report, which list employee names, social security numbers, taxable wages, taxable tips, state in which worker was employed during the reported quarter, and employer's federal account number.

wage information reports