(K) Section 7 - Unemployment Insurance Flashcards
What is the purpose of unemployment insurance?
To provide income for terminated employees while they are tyring to secure another job.
Is uneployment insurance a joint Federal-state system?
Yes
What is FUTA Federal Unemployment Tax Act ?
Requires employer contributions to unemployment insurance in the form of unemployment taxes. FUTA cannot be withheld from employees wagesState unemployment insurance-each state requires employers to contribute to an unemployment insurance program
What employers are exempt from FUTA taxes?
- Federal, state, and local governemnt employers
- Non profit religious, charitable, or educational organizations that are tax exempt
Who pays FUTA taxs?
Most employers including: -Non farm employers paying $1,500 or more in covered wages in a calendar quarter-Farm employers paying $20,000 or more in covered wages in a calendar quarter-Employers paying domestic employees $1,000 or more in covered wages in a calendar quarter
What wages are exempt from FUTA?
All employee compensation is subject to FUTA tax unless specifically exempted under the internal Revenue Code: The following are examples of wages exempt from FUTA: -Sick or disability benefits paid more than 6 months from date last worked for employer -Benefits paid under state worker’s compensation law-Payments made under 125 flexible benefits plan-Qualified moving expenses reimburesments-The value of group-term life insurance coverage
What is the FUTA tax rate and Wage base?
Beginning July 1, 2011 employer’s pay 6% FUTA tax on their employee’s wagesThe rate is applied to ther first $7,000 of an employee’s covered wages in a calendar year.
What are examples of employment exempt for FUTA
-Work performed for a government employer-wor by full time sutdent for the school they attend or for an organized camp-work done for a foreing government or an international organization-work performed as student nurses or hospital interns -newspaper deliveries under age 18-work performed by statutory non employees
What is the percentage credit employers can recieve on their FUTA tax rate if state unemployment taxes are paid in full and on time?
Tax credit up to 5.4% Employers receiving the full credit have a effective FUTA tax rate of 0.06% (6%-5.4%=0.06%)Note: Employers in states with outstanding loans due to the federal fund will not receive the full credit. The terms “credit reduction” or “credit reduction state” are used
FUTA taxes are detemined on a ______ basis.
Quarterly
When are FUTA taxes deposited and paid?
Employers can assume they will receive the full 5.4% credit. Points to remember: -if owe less than $500 in a quarter, no deposit is necessary-Due date is last day of the month after the quarter end (1st quarter taxes are due by April 30)-Employers complete from 940 for the 4th quarter and in doing so, determine how much of the credit they were actually entitled to. -Final balance is due by january 31.
What form is used to report FUTA taxes?
Employers use form 940 to report their FUTA tax liability yearly. Fourth quarter taxes may also be paid with the Form 940 if less than $500
When is form 940 due?
Due on [January 31] but there is an automatice extension until [Febuary 10]. If the employer has deposited theri FUTA tax liability on time for all 4 quarters.
What are FUTA penalties for noncompliance?
Late filing of Form 940-Depends on how late the return is filed-5% of the amount of tax for each month, up to 25%Failure to pay FUTA tax-Depends on how late the payment is made-0.5% of unpaid tax for each month, up to 25% -An additional 0.5% per month which the IRS has issued a notice and demand, up to 25%Failure to file and payAccuracy related penalties -Understating the amount of the tax due-20% of the understated amountFailure to make timely FUTA deposit
What is employer’s unpemployment tax cost directly tied to?
its tied to unemployment experience. Unemployment experince, being the number of employees it terminates and the amount of benefits they collect
