How to Calculate FUTA & SUTA Taxes
FUTA and SUTA taxes are forms of payroll tax that are deducted from the wages of all W-2 employees. FUTA is an acronym for the Federal Unemployment Tax Act, and SUTA stands for State Unemployment Tax Authority. Calculating these taxes from employee payrolls is very simple.
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Instructions
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Determine whether you must pay FUTA tax for your employees. Consult IRS Publication 15, page 29, to see if you meet the criteria for any of the three tests prescribed therein. These tests pertain to the amount of wages paid per calendar quarter, household employees and farm workers. If you meet the criteria for any one of these tests, you must withhold FUTA taxes for your employees.
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Calculate FUTA tax by multiplying the first $7,000 an employee earns by 6.2 percent. 6.2 percent X $7,000 = $434. This is the amount of FUTA tax that all employees making at least $7,000 must pay each year. After June 30, 2011, the FUTA tax rate is scheduled to decrease from 6.2% to 6.0%.
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Withhold SUTA taxes for your employees to give them a credit for their state unemployment contributions. They can take a credit of up to 5.4 percent of their taxable wages against their FUTA contribution. Employees who make the maximum permissible SUTA contributions are left with an effective FUTA tax rate of 0.8 percent, or $56 per year. However, your state has to be in good standing with the federal government and the employee must pay the SUTA tax in a timely manner to get the credit.
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Calculate the SUTA tax by finding the wage base in your state. New employees are assigned an initial lower rate of withholding, the exact rate varies from state to state, for the first year or two. Then the withholding is reduced if the employee has not drawn unemployment benefits or increased if benefits have been collected. In most cases, the SUTA tax rate is ultimately determined by the number of unemployment claims the state has received from taxpayers who formerly worked for you. The rate usually starts at the highest level and decreases if few of your ex-employees file for benefits.
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Find your state unemployment office by looking in the appendix to IRS Publication 926. As an employer, you are required to file state unemployment taxes on a quarterly basis.
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Comments
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That sounds like an amazingly small amount for the company to pay if it's levied only on the first $7000. Combined between FUTA & SUTA that amounts to $434 a year in payments to support unemployment benefits. That will cover slightly more than the maximum benefit paid in New York State for one week.
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'FUTA and SUTA taxes are forms of payroll tax that are deducted from the wages of all W-2 employees.' No, they are not deducted. The employer bears the cost.
