Employer FUTA-SUTA Contributions

Understanding FUTA

Let's assume that Extreme Golf Balls, Ltd. (EGB, Ltd.) has paid wages of $99,625 in 2019. Of this amount, a bonus of $10,000 will not be paid until January, 2020 and the wages paid in excess of the FUTA limit amounted to $64,732. The gross FUTA tax imposed is computed as follows:

1. 	Description			Calculation
   1.	Total wages paid			$99,625
   2.	Less: Wages not paid until 2020 Less: Wages paid in excess of 2019 FUTA limit	($10,000) (64,732)		(74,732)
   4.	Total taxable wages			$24,893
   5.	Taxable wages Multiplied by the FUTA tax rate	$24,893 x 6.0%
   6.	Amount of gross FUTA tax, rounded to the nearest cent.			$1,493.58

Recall that an employer also makes contributions under approved state unemployment compensation laws which entitles them to a FUTA maximum credit. And, even if the employer pays a SUTA rate of less than the maximum, they get the full credit against the FUTA tax. Let's look at EGB, Ltd.'s credit, knowing that they are located in Golf Shores, Alabama:

1. 	Description		Calculation
   1.	Total taxable wages (see above)		$24,893
   2.	Multiplied by the net rate of tax (6.0% - 5.4%)		x 0.6%
   3.	Amount of net FUTA tax, rounded to the nearest cent.		$149.36

Understanding SUTA

The unemployment compensation laws of certain states set the taxable wage base at an amount higher than the federal amount paid to each employee. For example, in Alabama, the wage base for 2019 was the first $8,000. In such states, the total contributions that the employer must pay into the state fund are computed based on their taxable wage base and not the FUTA taxable base.

And, the method by which the employer contributions may be adjusted because of a favorable employment record is referred to as experience rating or merit rating. Thus, an employers favorable experience rate (employment record) qualifies the employer for a SUTA rate lower than the FUTA rate.

Let's look at the total unemployment taxes for EGB, Ltd. They have been in business in Alabama for over 20 years, earning an experience rating of 2.7% and reporting taxable wages (on the first $8,000) of $39,625.

1. 	Description		Calculation
   1.	Net FUTA tax: $24,893 (see above) 0.6%		$149.36
   2.	SUTA tax: $39,625 2.7%, rounded		1,069.88
   3.	Total unemployment taxes, rounded to the nearest cent.		$1,219.24

Tackle It

Compute the total unemployment taxes for each company.

Note: Round all amounts to the nearest cent.

Skateboards for All is a skateboard and scooter store in Freeport, Maine. They paid wages of $66,042 in 2019 of which $38,848 are in excess of the FUTA limit. They have SUTA wages of $28,554 on the first $12,000 and an experience rating of 2.5%.

Employer: Skateboards for All
Net FUTA tax	$
SUTA tax
Total unemployment tax	$

Lovin' Football is a football equipment store in St. Cloud, Minnesota. They paid wages of $78,584 in 2019 of which $49,115 are in excess of the FUTA limit. They have SUTA wages of $36,836 on the first $12,000 of wages and have an experience rating of 3.4%.

Employer: Lovin' Football
Net FUTA tax	$
SUTA tax
Total unemployment tax	$

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Employee SUTA Contributions

Employee SUTA Contributions

Some states impose a contributions requirement on employees in addition to the contributions made by the employer. Computing an employee's withholding is computationally no different than an employer's... taxable wages (those under the cap) times the state rate for employees.

Let's investigate an individual that lives in New Jersey whose monthly wages equal $2,470 and whose earnings to date have not exceeded to New Jersey cap of $.

1. 	Description		Calculation
   1.	Looking at the chart, in the Employee column, it provides the employee withholding rate (.675% in New Jersey) and the withholding taxable wage cap.
   2.	Taxable wages		$2,470
   3.	New Jersey employee rate		0.675%
   4.	Employee SUTA tax, rounded to the nearest cent		$16.67

Tackle It

Using the amalgamated State SUTA chart, complete the following.

Note: Round all amounts to the nearest cent.

Mia Hamm lives in Alaska and has wages of $724.00 per week and has not exceeded the SUTA cap of $.

Employee: Hamm, Mia	State:
Taxable wages	$
SUTA tax	%
Total unemployment tax	$