Exam 5: Unemployment Compensation Taxes

An employer must pay the quarterly FUTA tax liability if the liability is more than:

FUTA coverage does not include service of any nature performed outside the United States by a citizen of the United States for an American employer.

The federal unemployment tax is imposed on employers, and thus, is not deducted from employees' wages.

Instruction 5-1 Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages. Refer to Instruction 5-1 . Stys Company's payroll for the year is $1,210,930. Of this amount, $510,710 is for wages paid in excess of $7,000 to each individual employee. The SUTA tax rate for the company is 3.2% on the first $7,000 of each employee's earnings.

FUTA and SUTA coverages extend to U.S. citizens working abroad for American employers.

The maximum credit that can be applied to the FUTA tax because of SUTA contributions is 5.4%.

Included under the definition of employees for FUTA purposes are:

Insurance agents paid solely on a commission basis are not considered employees under FUTA.

If an employer is subject to a credit reduction because of Title XII advances, the penalty for the entire year will be paid only with the deposit for the last quarter of the year.

"Dumping" is legal in all but a few states.

Educational assistance payments made to workers to improve skills required of their jobs are nontaxable for unemployment purposes.

The payments of FUTA taxes are included with the payments of FICA and FIT taxes and are paid as one lump sum.

Caruso Company's SUTA rate for next year is 2.9% because its reserve ratio falls in its state's 8% to less than 10% category [(contributions - benefits paid) ÷ average payroll = $93,500 ÷ $971,500 = 9.62%]. If the next category (10% to less than 12%) would give Caruso a lower tax rate of 2.3%, what would be the amount of the voluntary contribution needed to get Caruso to that next category?

Form 940 can also be used to file an amended return.

In some states, employers may obtain reduced unemployment compensation rates by making voluntary contributions to the state fund.

Employer contributions made to employees' 401(k) plans that are included in total payments on Form 940 are also then deducted as exempt payments.

E-pay or a major debit or credit card can be used to pay the required FUTA deposits during the year.

Only employers who paid state unemployment taxes in more than one state or paid wages in a credit reduction state are required to complete Schedule A of Form 940.

Unemployment taxes (FUTA and SUTA) do not have to be paid by an employer who has only part-time employees.

Instruction 5-1 Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages. Refer to Instruction 5-1 . Niemann Company has a SUTA tax rate of 7.1%. The taxable payroll for the year for FUTA and SUTA is $82,600.