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Who has to pay FUTA and SUTA taxes?Īlthough FUTA and SUTA are different, and each state’s SUTA regulations and tax rates vary, the criteria that determine whether a company must pay FUTA and SUTA taxes are mostly the same. As with almost all state regulations, the rules that company owners must follow for SUTA vary by state. Just as FUTA taxes fund federal unemployment programs, SUTA taxes fund your state’s unemployment insurance program. The SUTA tax is the state version of the FUTA tax. Without FUTA taxes, the federal government would be largely unable to fund its unemployment program, which provides financial assistance to people who have lost their jobs through no fault of their own, meaning they were not fired or quit. The FUTA tax is a tax that companies pay toward federal unemployment insurance. Read this guide to learn all about FUTA, SUTA, and your obligations for each. The provisions for paying these taxes are based on two distinct but interrelated regulations: the Federal Unemployment Tax Act (FUTA) and State Unemployment Tax Act (SUTA).
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In all likelihood, your company has to pay unemployment taxes to both the federal government and your state’s government. We are prepared to keep you informed of legislative changes as they occur from the federal, and state levels.įor more information, please contact your Client Manager.There are two other tax categories that your company pays for entirely: unemployment taxes.
FUTA AND SUTA TAX TABLE FOR 2016 FULL
However, if a state has outstanding federal loan balances on January 1 for two consecutive years, and does not repay the full amount by November 10 of the second year, the FUTA “credit” for employers in that state is reduced by 0.3% per year until the loan is repaid. Employers generally receive a credit of 5.4% when they file their Form 940, resulting in a net FUTA tax rate of 0.6%. The standard FUTA tax rate is 6.0% on the first $7,000 of wages subject to FUTA. A number of states, including California, did this during the recent economic downturn when the government expanded unemployment benefits. When states don’t have enough funds to pay UI benefits for residents of their states, they take loans from the federal fund. Funds from the tax create the Federal Unemployment Trust Fund. StateįUTA: (Federal Unemployment Tax Act) is a federal tax levied on employers covered by a state’s unemployment insurance (UI) program. To estimate the additional taxes, calculate the additional cost by the number of employees. FUTA is calculated on the first $7000 of wages per year. The additional amounts below are the maximum amount per employee for 2015. California Payroll will notify you of additional tax liabilities due once the 2015 Form 940 payroll tax return is calculated in January 2016.īelow is a list of States and their associated credit reductions. As a result, the 5.4% credit is being reduced by 1.5%, (5.4 – 1.5 = 3.9) resulting in a reduced credit of 3.9% and adjusted net FUTA tax rate of 2.1% (6.0 – 3.9 = 2.1%).Īccording to IRS regulations, any increased FUTA tax liability due to a credit reduction is considered incurred in the fourth quarter (for that calendar year) and is due by January 31 of the following year. California is one of four jurisdictions that still have an outstanding loan balance on January 1 for the years 2010 through 2015. The state of California did not repay the Federal loan by the deadline of November 10, and thus employers in the state will be required to pay a higher FUTA rate retroactively to January 1 of this year. The state’s loan balance has been reduced from over 9 billion to around 5.4 billion. The FUTA tax “credit” employers normally receive is being reduced as a result of California’s outstanding loan balances with the Federal Unemployment Trust Fund. For the fourth year in a row, California has not fully repaid the unemployment loans. The states have until November to repay the outstanding federal loans to avoid credit reductions. This increase will be based on FUTA taxable wages paid in the affected jurisdictions during 2015.Ĭalifornia employers will pay a higher FUTA tax rate in January when the 2015 Form 940 is filed. Virgin Islands will pay higher Federal Unemployment Act (FUTA) taxes in January 2016, due to unpaid federal loans to those affected states. Employers in California to Pay Higher FUTA Tax Rates RetroactivelyĮmployers in three states (California, Connecticut, and Ohio) and the U.S.