Thursday 12 March 2015

What are the corporate obligations related to federal unemployment tax?

Employers must pay both state and federal unemployment taxes according to a variety of factors. These taxes are used to fund the unemployment compensation benefit programs at the state and federal level. The proceeds are pooled to pay workers who lose their jobs due to no fault of their own. The focus of this article will be on corporate unemployment taxes paid to the federal government.

The amount of federal unemployment taxes that employers pay is determined by factors like the business type, its age, the amount of money that they pay their employees and the number of unemployment claims filed against them. The Federal Unemployment Tax Act (FUTA) forces a payroll tax onto businesses according to the wages that they pay to their personnel. While the burden of other payroll taxes is shared, the FUTA tax must be paid solely by the employer. This money is not withheld from employee wages.

In order to determine if your business must pay the FUTA tax, it must meet one of two conditions. Wages paid must have totaled a minimum of $1,500 to employees during any quarter. Or, the business must have a minimum of one employee on any day in each of 20 unique calendar weeks. These weeks do not have to be consecutive nor does the single employee need to be the same person. The federal government has defined a calendar week as seven straight days starting on Sunday and ending on the next Saturday. If a business meets either of these conditions, it will be required to pay the FUTA tax for the full calendar year as well as the following calendar year.

The FUTA tax is applied at a flat rate on the initial $7,000 worth of wages paid to each employee. When an employee's earnings for a single calendar year surpass $7,000, the business has no additional FUTA liability for that employee throughout the remainder of the year. This FUTA tax rate, applicable to the first $7,000 of wages per employee, is 6%.

It is worth noting that a business can typically claim credit versus its gross FUTA tax owed to reflect their unemployment taxes owed to the state. If the business pays all of its state unemployment taxes in a timely manner and ahead of the FUTA due date, it will be permitted to claim a credit worth 5.4% of the federally taxable wages. This can prove to be quite helpful as it can decrease the FUTA tax rate to merely 0.6%.  https://www.facebook.com/pages/Martin-Russo-Attorney/1531397160408391

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