Section 7 Unemployment Insurance

Question 1

What is the purpose of unemployment insurance?

Answer 1

To provide income for terminated employees while they are tyring to secure another job.

Question 2

Is uneployment insurance a joint Federal-state system?

Answer 2

Yes

Question 3

What is FUTA Federal Unemployment Tax Act ?

Answer 3

Requires employer contributions to unemployment insurance in the form of unemployment taxes.

FUTA cannot be withheld from employees wages

State unemployment insurance
-each state requires employers to contribute to an unemployment insurance program

Question 4

Who pays FUTA taxs?

Answer 4

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

Question 5

What employers are exempt from FUTA taxes?

Answer 5

• Federal, state, and local governemnt employers

- Non profit religious, charitable, or educational organizations that are tax exempt

Question 6

What wages are exempt from FUTA?

Answer 6

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

Question 7

What are examples of employment exempt for FUTA

Answer 7

• 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

Question 8

What is the FUTA tax rate and Wage base?

Answer 8

Beginning July 1, 2011 employer’s pay 6% FUTA tax on their employee’s wages

The rate is applied to ther first $7,000 of an employee’s covered wages in a calendar year

[Through jun 30,2011, employers paid 6.2% FUTA tax on their employee’s wages
-permanent rate of 6.0%
-a surtax of 0.2% had been in place since 1976
The surtax expired on June 30, 2011.]

Question 9

What is the percentage credit employers can recieve on their FUTA tax rate if state unemployment taxes are paid in full and on time?

Answer 9

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

Question 10

FUTA taxes are detemined on a ______ basis.

Answer 10

Quarterly

Question 11

When are FUTA taxes deposited and paid?

Answer 11

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.

Question 12

What form is used to report FUTA taxes?

Answer 12

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

Question 13

When is form 940 due?

Answer 13

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.

Question 14

What are FUTA penalties for noncompliance?

Answer 14

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 pay

Accuracy related penalties

• Understating the amount of the tax due
• 20% of the understated amount

Failure to make timely FUTA deposit

Question 15

What is employer’s unpemployment tax cost directly tied to?

Answer 15

its tied to unemployment experience.

Unemployment experince, being the number of employees it terminates and the amount of benefits they collect

Question 16

What is SUTA dumping?

Answer 16

refers to the act of manipulating state unemployment insurance rates so a company achieves a lower rate.

Question 17

What is the name of the act passed in 2004, requires states to enact laws for the purpose of stopping companies fom manipulating their SUI rates.

Answer 17

SUTA Dumping Prevention act of 2004

Question 18

What is the unemployment benefit process?

Answer 18

Eligibility for benefits

• Earning a certian amount of wages in the “base period’
• Being involuntarily unemployed for reasons other than misconduct connected with their work
• Filing a claim for benefits
• Registering for work with the state employment security office being physically and mentally able to work
• Be looking for and available for work
• Not being unemployed because of a labor dispute other than a lockout
• Being truthful in applying for benefits

Benefit period: 26 weeks
-can be extended if recipient works part-time and /or if the federal gov extends (emergency extension during periods of high unemployment)

Dollar amount of benefits is based on the wages earned.