What Is Considered Payroll Taxes for Unemployment Insurance?
The Federal Unemployment Tax Act, or FUTA, requires most employers to pay federal unemployment tax, which is also called unemployment insurance. The State Unemployment Tax Act, or SUTA, requires state unemployment insurance. The federal and state unemployment system work together to provide unemployment benefits to qualified employees who have lost employment.
Other People Are Reading
-
Application
-
The Internal Revenue Service, which administrates FUTA laws, has a general test that employers can take to determine if they should pay federal unemployment tax. The 2011 IRS Circular E says the employer is subject to federal unemployment tax if it paid wages of $1,500 or more in any quarter of 2010 or 2011, or if it had one or more workers who worked at least some portion of a day for 20 or more different weeks in 2010 or 2011. State unemployment laws depend on the state. A Montana employer, for example, pays SUTA tax if it's also subject to FUTA tax.
FUTA Calculation
-
The employer can obtain the federal unemployment tax rate from the Circular E. For example, before July 1, 2011, it pays 6.2 percent of the first $7,000 paid to each employee and 6 percent after June 30, 2011. If it paid its state unemployment tax properly, it can take the maximum credit of 5.4 percent against its federal unemployment tax; the FUTA rate then decreases to 0.8 percent before July 1, 2011, and to 0.6 percent after June 30, 2011.
-
SUTA Calculation
-
Each state's Department of Labor/Employment generally has an unemployment insurance division that administrates unemployment tax. The department sends or mails the employer its tax rate for the upcoming tax year, which depends on varying factors, such as the number of former employees who have drawn unemployment benefits and the longevity of the business. The employer multiplies its tax rate by the state annual wage base to arrive at its SUTA liabilities for each employee.
Considerations
-
The employer alone pays federal and state unemployment insurance; it shouldn't deduct it from employees' paychecks. The state unemployment department requires the employer to file wage reports, typically quarterly. The Internal Revenue Service requires annual reporting for federal unemployment tax. Employers with household employees or farm workers are subject to a separate test to determine whether they should pay FUTA tax. The Circular E has all requirements. For example, a household employer pays federal unemployment tax if it pays cash wages of $1,000 or more to household workers in 2010 or 2011.
-
