Page 269 - Essentials of Payroll: Management and Accounting

ESSENTIALS of Payr oll: Management and Accounting
continue for up to half a year.The amount of benefits, their calculation,
and the terms of payment vary by state program.
This chapter reviews several components of the unemployment tax
program, including the calculation of both federal and state unemploy-
ment taxes, the calculation of the contribution rate, the reason for filing

voluntary unemployment tax contributions, and how to fill out the 940
and 940-EZ forms.

Federal Unemployment Tax
The Federal Unemployment Tax (FUTA) is paid by employers only. It
is currently set at 6.2 percent of the first $7,000 of a person’s wages

earned in a year. However, the actual amount paid to the federal gov-
ernment is substantially lower,since employers take a credit based on the
amount of funds paid into their state unemployment programs (not
including any FUTA payments deducted from employee pay, additional
penalties paid as part of the state-assigned percentage, and any voluntary
contributions to the state unemployment fund). Employers with a history
of minimal layoffs can receive an extra credit above amounts paid into
their state funds that brings their total credit against the federal tax to 5.4
percent.When the maximum credit amount is applied to the federal tax

rate, the effective rate paid drops to 0.8 percent. This maximum credit is
based on 90 percent of the total federal rate.
If a state experiences a large amount of unemployment claims and
uses up its funds,it can borrow money from the federal fund,which must
be paid back by the end of the next calendar year. If not, then the
amount of the FUTA credit is reduced for employers within that state,
which brings in enough additional funds to eventually pay back the loan.

According to government instructions accompanying Form 940
(discussed later in the chapter), FUTA taxes are not payable in the fol-
lowing situations:

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