Transcript state unemployment insurance
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Federal Unemployment Tax
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Who pays FUTA
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Exempt wages
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Exempt Employment
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FUTA Tax Rate & Wage Base
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Depositing & Reporting FUTA tax
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Calculating the State Credits
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Form 940
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Penalties for noncompliance
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AGENDA
State Unemployment Insurance
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Employment Relationship
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SUI Taxable wages
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Contribution rates & Experience rates
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Voluntary Contributions
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Joint or combined accounts
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Unemployment Benefits Process
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Reporting Requirements State Disability Insurance Multiple Worksite Reporting
Who must pay FUTA?
• Nonfarm employers paying $1,500 or more in covered wages in any calendar quarter (current or preceding year) • Nonfarm employers employing at least one employee for at least one day in 20 different weeks(not consecutive) (current or preceding year) • Farm employers paying $20,000 or more in covered wages in any calendar quarter (current or preceding year) • Farm employers employing at least 10 employees for at least part of one day in 20 different weeks(not consecutive) (current or preceding year) • Employers paying domestic employees $1,000 or more in any calendar quarter (current or preceding year) for work in private home, college club, fraternity or sorority
Who does not pay FUTA Easier to say who does not pay. . .
• Federal, State and Local government employers including Indian Tribes • Nonprofit, religious, charitable or educational organizations that are tax exempt
Exempt Wages
• • • • • • • Sick or disability benefits paid more than six calendar months Sickness or injury payments made under a state workers comp law Deferred comp payments, not elective deferrals Payments made under a 125 flex plan-other than adoption or deferred compensation Noncash payments for work outside the employers business Qualified moving expense Death or disability retirement benefits • • • • • • Noncash payments to agricultural workers Reimbursement or provision for educational or dependent care assistance The value of GTL(entire amount ) Value of deductible meals & lodging provided by employer Wages paid to a beneficiary after the year of an employees death Tips not reported by an employee
Exempt Employment Types
• • • • • • • Federal, state, local government employers including political subdivisions Work on a foreign ship outside U.S.
Work by full time students at the school they are attending Work for a foreign government or international organization Student nurses or hospital interns Insurance agents, commission only Newspaper deliverers under 18 • • • • • • • Non immigrant aliens under F, J, M or Q visas Work for a spouse or child Work performed by a child under 21 for their parents Work by inmates of a penal institution Work by election worker paid < $1600 in 2013 Alien agricultural workers under an H-2A visa Statutory nonemployees
FUTA Tax Rate / Wage Base
FUTA Tax rate is 6.0%
Credit of up to 5.4% available for effective rate of .6% Tax is employer paid Rate is applied to the first $7,000 of an employee’s covered wages A .2 % surcharge, in effect since 1976, was due to expire at the end of 2009. However, the Worker, Homeownership and Business Assistance Act of 2009 extended the surcharge through June 30, 2011. The .2% surcharge was allowed to lapse effective July 1, 2011.
Constructive payment rules apply – doesn’t matter WHEN wages were earned. DOES matter when they are PAID.
FUTA Tax Rate / Wage Base
If employers pay their state unemployment taxes in full and on time a credit up to 5.4% can be taken Full credit allows for tax calculation to be .6 % Maximum to be paid $7,000 x .6% = $42.00 per employee Payment by successor companies based on the company application of the Social Security tax payment – however both predecessor and successor must be covered under FUTA.
Common paymaster companies follow the same practice as the withholding and payments for Social Security and Medicare
Depositing & Paying FUTA Tax
Employers can assume the credit for the first three quarters of a calendar year thus multiplying taxable wages by .6% --up to $7,000 wage base limit for a maximum of $42.00 per employee If amount for all employees is $500 or greater then the deposit is due respectively 1 st quarter--- April 30 2 nd quarter-- July 31 3 rd quarter – October 31 If under $500 then the amount need not be deposited but carry over to the next quarter until the threshold of $500 is met .
The final quarter when filing the 940 and annual liability is reviewed: Employer verifies the actual credit percentage Adjusts if any difference necessary Verifies 4 th quarter liability if < $500 then can be paid with the 940 by January 31 if > $500 must be deposited separately by January 31
Calculating the credit
Two types of credit scenarios are available: 90% or normal credit- 5.4 % Additional credit – utilize the lesser rate of the state Regardless of which option used: State must have “certified unemployment insurance program” The credit utilized cannot exceed the 5.4%
90% or normal credit
To claim the full 5.4% credit all deposits due must be made as required by law with the final payment being no later than when filing the 940.
All State unemployment payments must be made timely… if sent to wrong state, proof of timely submission will allow the credit.
If payment is late to the state, employer must calculate the liability as: Annual Liability amount $1600 – Paid $1000 timely = $600 late Timely state payment $1000 x 100% = $1000.
Late state payment $600.00 x 90% = $540.00
Total credit on the liability = $1540.00
Additional Credit allowance
If an employer has a state unemployment rate that is less than 5.4 %, the employer receives a credit for the difference between the FUTA credit of 5.4% and the state unemployment rate.
Example: state unemployment rate is 3.6% The additional credit is 5.4 % - 3.6% = 1.8% The additional credit allow employers with a stable employment history to receive the same credit as other employers.
Credit reductions State loans for UI
• • • • • • States that have high unemployment may borrow funds from the federal agency to assist in benefit payments The loans must be repaid by the end of the following year to avoid a credit reduction If the loan is not paid in full by Nov 10 th new credit rate would be .9% then a .3 % reduction is imposed Each year a loan remains unpaid the credit reduction increases by an additional .3% After Nov 10 th the IRS announces the credit reductions for that year and they are included on Form 940 Schedule A 18 states plus the Virgin Islands were credit reduction states for 2012
Form 940
Annual filing form showing the company's FUTA liability Due date is January 31 st following the year of the liabilities All forms must be signed by an owner, president, vice president, principal corporate officer, authorized partner or fiduciary.
Delivery must be made by mail, delivery service or hand delivered to the company’s appropriate IRS office, assigned based on where the business Is located, or if payment is accompanying the form.
Employers have an automatic 10 day extension for filing their Form 940 as long as their liability each quarter was paid in full and on time.
Amended 940
• Send the corrected form, checking the box labeled “Amended ” (Box ‘a’) • Attach a statement explaining why the amended return is necessary • Certification from state for credit allowance or credit reduction o If overpayment is claimed: Attach file 843—Claim for Refund and Request for Abatement o If underpayment situation: Include check for underpayment amount along with appropriate late filing percentage • Amended 940 cannot be electronically filed – must be a paper form sent to IRS Additional notes : Successor company – needs to file and check the box labeled “Successor Employer” Out of Business – need to file, pay and check the box labeled “Final: Business closed or Not paying wages”
940 - Line by Line
General filing information: Business name and EIN must be on the top of each page If paper form must use a 12 point Courier font Dollars posted to the left and cents to the right of the decimal Do not use dollar signs or decimals—commas are optional Amounts on the form may be rounded If rounding – must be consistent Do not post 0 (zero) Leave blank If applicable ensure to check the necessary box
940 - Line by Line
Part 1, Line 1a – State abbreviation Part 1, Line 1b – Multi-State employer Check box Must complete Part 1 of Schedule A Part 1, Line 2 – Credit reduction status check box Must complete Part 2 of Schedule A Part 2, Line 3 – Total payments to all employees (all wages) Part 2, Line 4– Payments exempt from FUTA If there is an amount on line 4 must check the applicable boxes 4a- 4e 4a-Fringe benefits – this includes qualified moving expenses (talk to AP) 4b- Group Term Life 4c – Retirement / Pension 4d – Dependent care 4e – Other – agriculture, visas, workers comp, etc Part 2, Line 5—Total of payments made to each employee in excess of $7,000 Part 2, Line 6– Subtotal – Total of exempt payments (lines 4+ 5) Part 2, Line 7 – Total taxable FUTA wages (lines 3-6) Part 2, Line 8 – FUTA tax before adjustments - (line 7 x .006)
940 - Line by Line
Part 3, Line 9 – If all FUTA wages paid were exempt from SUTA— Must pay those wages at full 6.0% ( line 7 x 5.4%) Part 3, Line 10 – If some FUTA wages paid were exempt from SUTA or paid late complete the worksheet in the instructions and transfer line 7 to line 10 on 940 Part 3, Line 11– If credit reduction applies complete Schedule A and Transfer line 3 from Schedule A to Line 11 on the 940 Part 4, Line 12 – Total FUTA taxes after adjustments– (add lines 8-11) Part 4, Line 13 – FUTA tax deposited for the year Part 4, Line 14 – Balance due (line 12-13) Part 4, Line 15 – Overpayment (line 13-12)
940 - Line by Line
Part 5, – Report your FUTA tax liability by quarter only if line 12 is >$500 Part 5, Line 16 – Report the FUTA tax liability for each quarter This is the actual liability - not deposit amounts Part 5, Line 17 - Total tax liability for the year (add lines 16a- 16d Part 6 – May we speak with your third party designee?
Designee may: Give the IRS any information that is missing from the form Ask the IRS for any additional information about processing the form Respond to certain IRS notices—math errors & processing form Designee may not Receive refunds Bind employer to anything Represent the employer before the IRS in any other matter Part 7– Sign here--- Must be signed Paid preparer use only– Vendor that has completed the form
Schedule A and 940 -V
Schedule A -- Multi-State employer and Credit Reduction Information
Part 1, Line 1– Check box for every state in which you were required to pay SUI tax Part 2, Line 2 – Credit reduction for specific states – (add lines 2b,2d,2f) 18 credit reduction states in 2012 plus US Virgin Islands Part 2, Line 3 - Total Credit reduction
940-V– Form 940 Payment Voucher
Utilized only when mailing a check with the 940 Payment can be made via EFTPS Credit card or Debit card payments can be made with one of three authorized service providers. Payments may be made via phone or internet. Provider charges a fee based on amount of payment
Penalties for FUTA Noncompliance
Late filing of Form 940 – addition to tax
5% of the amount of tax required to be shown on the return (reduced by timely deposits and credits) for each month or fraction of month return is late Maximum of 25% If fraudulent return – amounts increase to 15% up to a maximum of 75%
Failure to pay FUTA tax- addition to tax
.5% of the unpaid tax shown on the return( reduced by credits) for each month or fraction of month payment is late to a max of 25% An additional .5% per month on the amount if notice or demand is issued and not paid within 21 days (10 days if amount is at least $100,000) up to a max of 25% If not paid percentage increases to 1% -- if not paid within 10 days of a demand notice issued with one day to pay or levy issued to company signer
Penalties for Noncompliance
Failure to file and pay – the addition for failure to file is reduced by .5% of unpaid tax assessed if both late deposit and late filing occur Reasonable cause—Affirmative statement under penalty of perjury that the employer “exercised ordinary business care and prudence” and could still not pay or file Accuracy related penalty – Understating the amount or mathematical errors could result in a 20% penalty on the understated amount Failure to make timely deposits - Additional late penalty is assessed based on a four tier scale: 2% if the undeposited amount is paid within 5 days of due date 5% if the undeposited amount is paid within 6-15 days of the due date 10% if the undeposited amount is paid more than 15 days after the due date 15% if the undeposited amount is not paid within 10 days of notice
Beginning in 2011, all federal tax deposits must be made using EFTPS
10% penalty for not paying via EFTPS (not applicable to employers who owe less than $500)
STATE UNEMPLOYMENT INSURANCE
State Unemployment Insurance
Applicable for employees not independent contractors Each state sets their own wage base and rate Employers conducting business or services in multiple states need to allocate wages for unemployment purposes Four factors when allocating: 1. Are services localized? – one primary location and other state activity is incidental, temporary 2. Does the employee have a base of operation? - office, reports to corporate office , etc 3. Is there a Place of Direction or control? – no localization, no office, results to their superior where direction will be communicated 4. What is the employees state of residence? – In rare cases where none of the aforementioned apply, the employee’s residential state is to be utilized.
Reciprocal agreements allow for employers to choose one state for payment when the employee travels between the states.
SUTA Taxable Wages
FUTA requires each state’s taxable wage base must at least equal the FUTA taxable wage base of $7,000.
Types of payments included as taxable wages by the states generally follow the FUTA taxable wage base. BUT … don’t ASSUME!
States can raise or lower their taxable wage base and will usually notify employers of changes prior to the beginning of the new tax year.
Contribution Rates & Experience Rating
Contribution rate is the rate an employer applies to its taxable payroll for each employee up to a state determined wage base limit Experience rating is the assessment of the contribution rate based on the employers average annual taxable wages and unemployment benefits charged
Methods to determine Experience Rate
Reserve Ratio – primarily used – account assigned for company payments and reduced based on benefits charged
Reserve Ratio = Unemployment taxes paid – Benefits charged Average Taxable Payroll (the HIGHER the ratio, the lower the tax rate)
Benefit Ratio- 2 nd most used formula –
Benefit Ratio = Benefits charged Total taxable payroll (the LOWER the ratio, the lower the tax rate)
Methods to determine Experience Rate
Benefit wage ratio method – Used in Delaware and Oklahoma
Benefit wage ratio = Benefit wages paid Total taxable payroll (the LOWER the ratio, the lower the tax rate)
Payroll Stabilization – Alaska only state to utilize
Fluctuation in payroll from quarter to quarter either increases or decreases the rate Surcharges may be assessed if the state is experiencing high unemployment, or has federal loan assistance. The surcharge may or may not play a factor when determining state credit against FUTA tax liability, depending on the reason it was established.
New Employer Rate - employer’s industry may be a factor in some states
SUTA Dumping Prevention Act 2004
Law created to eliminate the manipulation of state unemployment rates to achieve a lower employer tax rate (“dumping” the higher rate) Law mandated each state enact state laws providing for the four factors: • Mandatory transfers– Unemployment experience must be transferred between common ownership companies • Prohibited transfers—new company cannot utilize the lower rate of selling company, a new company rate must be provided • Penalties for SUTA Dumping– must have meaningful civil and criminal penalties for violating the transfer requirements • Procedures for identifying SUTA Dumping must be established by each state Failure to have these controls will prohibit the state to be certified under the FUTA Act.
Noteworthy SUTA Laws
Non- profit and public sector generally follow one of two options • Direct reimbursement—Employer reimburses the state directly for any unemployment benefits charged to it • Choose to become experience rated (rare)
Employee contributions
Three states have plans that require employee contributions
Pennsylvania – Alaska - New Jersey
Voluntary Contributions - 27 states allow additional payments into the fund account to lower the employer’s tax rate. States have strict guidelines and timetables and not all employers are eligible.
Joint or Combined Accounts
When employers have more than one subsidiary in a state with separate FEIN’s, they may want to look at joining the subsidiaries for unemployment insurance purposes. With the right mixture of good & bad unemployment experience, combining accounts may save the employer money.
Not all states offer the joint account option The states that do allow the joint account option have very strict guidelines
Unemployment Benefit Process
State Dept of Labor – places guidelines and conditions around granting Unemployment Benefits DOL issued final ruling in 2007 to limit state’s payment of unemployment stating individual must be “able and available to work” In most states, the “base period” is the first 4 calendar quarters out of the 5 preceding the quarter during which the employee first filed the claim for benefits Balanced Budget Act of 1997 included a provision that guarantees states the discretion to administer base periods as they see fit Normal allowance is 26 weeks – Federal government may grant an emergency extension during periods of high unemployment
Unemployment Benefit Process
American Recovery and Reinvestment Act of 2009 – states were offered federal incentive funding thru 2011 if they adopted ABP (Alternative Base Period) which looks at the immediately preceding four quarters of earnings Incentive funding was also made available for states that enacted at least 2 of the following 4 provisions: 1) Coverage for part time workers 2) Coverage for workers who quit because of compelling family reasons 3) Coverage for workers in training programs 4) Dependent allowances Part-time employees may qualify for benefits – employees whose hours are reduced are eligible as long as they are not earning more than the weekly benefit amount Other payments may reduce benefits – holiday, vacation, dismissal or severance pay may delay a worker’s unemployment benefits in certain states
Unemployment Benefit Process
If employee worked for more than one employer during the base period, states can choose between 4 different methods to allocate benefit charges • Percentage of base period wages paid to claimant • Claimant’s most recent employer receives full charge • Employer who paid claimant the most wages during the base period receives full charge • Most recent base period employer charged first (up to a maximum amount), then next most recent, etc
Auditing and Challenging Benefit Claims
One way that companies can lower their expenditures for unemployment is to audit and challenge claims in efforts to alleviate some expenses.
Periodic Statements – provided by each state to the Employer should be audited regularly for errors and duplications Challenging benefit claims – Employer should challenge claims for which they believe the former employee is ineligible and respond to all notices and requests for information from the state
Reporting Requirements
Each state requires employers to submit quarterly reports with some or all of the following information: • Total wages paid • Taxable wages paid • Nontaxable wages paid • Number of employees each month • Gross wages for each employee • Taxable/Nontaxable wages breakdown for each employee • Number of weeks worked by each employee Many states require employers to file their quarterly wage information on some type of magnetic media – tape, cartridge, or diskette – or electronically file over the internet.
Multiple Worksite Reporting
Additional mandatory quarterly filing when an employer has multiple worksites MWR (Multiple Worksite Reporting) breaks down the employment and wages by locality and industry Filed with the State Employment Security agency The information is used by the Federal Bureau of Labor Statistics (BLS) Mandatory vs. Voluntary reporting – 27 states have mandatory Multiple Worksite Reporting requirements. Standardization of the form has streamlined the process.
A mandatory MWR employer :
• Uses one unemployment insurance account number for all its employees • Has more than one worksite, or conducts multiple activities • Has a total of at least 10 employees at all its secondary locations Magnetic filing and internet options can be obtained at the Bureau of Labor Statistics website and publications.
State Disability Insurance
California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico have State Disability Insurance programs to provide benefits to employees who are temporarily disabled by nonwork-related illness or injury Paid family leave in California – began in 2004 Family leave insurance in New Jersey – benefits available as of July 1, 2009 Contributions – SDI is funded by the employee and may include an amount to be funded by the employer