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Step 1
Determine whether you must pay FUTA tax for your employees. Consult IRS Publication 15, page 40, 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 farmworkers. If you meet the criteria for any one of these tests, then you must withhold FUTA taxes for your employees.
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Step 2
Calculate FUTA tax by simply 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.
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Step 3
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 Uncle Sam, and the employee must pay the SUTA tax in a timely manner to get the credit.
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Step 4
Calculate the SUTA tax by finding the wage base in your state. Any new employer will be assigned an initial lower rate of withholding (the exact rate varies from state to state) for the first year or 2. Then the withholding is either lowered if the employee has not drawn unemployment benefits or raised if benefits have been collected. In most cases, your 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 will decrease if few of your ex-employees file for benefits.
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Step 5
Find your state unemployment office by looking in the appendix to IRS Publication 926. They are all listed with contact numbers there. You are required as an employer to file state unemployment taxes on a quarterly basis.
