Payroll Accounting 2006
Bernard J. Bieg
CHAPTER 5
UNEMPLOYMENT
COMPENSATION TAXES
Developed by Lisa Swallow, CPA CMA MS
FUTA and SUTA
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FUTA
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Federal Unemployment Tax Act
 Employer tax required for administration of
federal and state unemployment insurance
programs
SUTA

State Unemployment Tax Acts
 Different for each state
 Funds used to pay benefits and administer
program at individual state’s level
Who is Covered under FUTA
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FUTA passed to comply with SSA of 1935
Employers are liable for this tax if
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Pay $1,500 of wages in any quarter in current or
prior year
Employ one or more persons, in one day in each of
20 weeks in current or prior year
**Then liable for FUTA for entire year**
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Employees include
• Part time, temps and regular workers
• Workers on vacation/sick leave
Employees Covered under FUTA

General rule is everyone is considered an
EE if common-law relationships exists
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Also included
 Drivers who distribute food/beverage
 Traveling salespeople [specific situations]
Specific exceptions as follows
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Partners
Directors
Independent contractors
Children under 21 working for parents
RRTA or governmental employees
Nonprofits (church, educational, etc.)
Complete list on page 5-6
Who is Covered under SUTA
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Employees generally covered under SUTA if
covered under FUTA
Many states apply “ABC” test for SUTA
exclusion
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Is the person free from control/direction
Is work performed outside usual course of
business
Is person usually engaged in an independent
trade or business
Interstate Employees and SUTA
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Multi-state employees: issue is to which state
does ER pay SUTA to (apply following in order)
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where is work localized (work primarily performed)
where is operational base (management, business
records)
where are operations directed (state where control
exist)
employee’s residence
If above do not yield appropriate answer,
Interstate Reciprocal Coverage Arrangement
may be fashioned (in most states)

Americans working overseas for American company
are covered
Taxable Wages for FUTA/SUTA

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Taxable FUTA wage base caps at
$7,000/year
Taxable SUTA wage base caps at different
amount in each state (pp 5.13 - 5.15)
Wages include:
 bonuses, advances, severance pay
 stock compensation
 fair market value
 tips
 complete list (pp 5.8 - 5.9)
Specifically Exempt Wages for FUTA
 Worker’s compensation payments
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Retirement pay
Educational assistance payments

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Meals and lodging

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if part of nondiscriminatory plan
if for employer’s benefit
Strike benefits
Complete list on page 5.9
FUTA Rates
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FUTA = 6.2% of first $7,000 of gross wages for
each employee per year

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.2% surcharge expires in 2007
5.4% credit against FUTA made for SUTA
Therefore gross = 6.2% - 5.4% credit = .8% net
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To get 5.4% credit must have:
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Made SUTA contributions on timely basis
Been located in a state that is not in default on their
Title XII advances (credit is reduced .3% per year
beginning the second year after the advance)

Title XII is the act that allows states to borrow
unemployment compensation funds from federal
government
FUTA Deposit and Reporting Overview
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Deposit quarterly
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But only if cumulatively over $100
Due dates are as follows*
1/1-3/31
deposit by 4/30
4/1-6/30
7/1-9/30
10/1-12/31
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deposit by 7/31
deposit by 10/31
deposit by 1/31
Form 940 due by 1/31 of following year
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Filed annually
*If falls on Saturday, Sunday or legal holiday, have until following
business day
FUTA Reporting Requirements
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Form 940 due by 1/31 next year
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Revised 2005 – combines 940 and 940-EZ
Only need to complete specific sections of 940 if
 Paid SUTA timely
 Paid SUTA to one state
 State is not in Title XII default
 SUTA taxable wages = FUTA taxable wages
Can amend (check appropriate box above Part I)
Upon cessation of business, check “final return”
box
How Much FUTA to Deposit
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If $500 or more, must deposit
If less, can wait and add to next
quarter, then if it’s $500 or more,
must deposit
If never gets over $500, pay with
Form 940 at year end
Use Form 8109 coupon and deposit
with an authorized depository
SUTA Deposit and Reporting Overview
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SUTA requirements vary widely by state
In some states, EE withholding is required
for SUTA
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in that case both SUTA for both EE and ER
deposited together
SUTA quarterly contribution report generally
shows
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each employee’s gross wages and taxable SUTA
wages (wage information)
contribution rate x taxable SUTA wages
amount of required payment
usually includes wage information report per
employee
Additional SUTA Information Reports
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Status reports
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Separation Reports
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initial registration with state as employer liable
for SUTA
informs state of separated employees - aids in
determination of eligibility for benefits
Partial Unemployment Notices
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notifies state and employees (who have had their
hours cut back to part time) of potential eligibility
for partial unemployment benefits