Employer FUTA-SUTA Contributions Understanding FUTA Let's assume that Extreme Golf Balls, Ltd. (EGB, Ltd.) has paid wages of $99,625 in 2020. Of this amount, a bonus of $10,000 will not be paid until January, 2021 and the wages paid in excess of the FUTA limit amounted to $64,732. The gross FUTA tax imposed is computed as follows: Description Calculation 1. Total wages paid $99,625 2. Less: Wages not paid until 2021 Less: Wages paid in excess of 2020 FUTA limit ($10,000) (64,732) (74,732) 4. Total taxable wages $24,893 $24,893 5. Taxable wages Multiplied by the FUTA tax rate 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 assuming they have paid their SUTA on time. 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 Gulf Shores, Alabama: 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 2020 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 employer's 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. Description Calculation 1. Net FUTA tax: $24,893 (see above) x 0.6% $149.36 2. SUTA tax: $39,625 x 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 $65,618 in 2020 of which $38,599 are in excess of the FUTA limit. They have SUTA wages of $28,370 on the first $12,000 and an experience rating of 3.2%. Employer: Skateboards for All Net FUTA tax 1,621.14 x SUTA tax 384 X Total unemployment tax $ 1,983.60 X Lovin' Football is a football equipment store in St. Cloud, Minnesota. They paid wages of $77,344 in 2020 of which $48,340 are in excess of the FUTA limit. They have SUTA wages of $36,255 on the first $12,000 of wages and have an experience rating of 2.3%. Employer: Lovin' Football Net FUTA tax 1,740.24 X SUTA tax 444 X Total unemployment tax 2,188.20 x Employer FUTA-SUTA Contributions Understanding FUTA Let's assume that Extreme Golf Balls, Ltd. (EGB, Ltd.) has paid wages of $99,625 in 2020. Of this amount, a bonus of $10,000 will not be paid until January, 2021 and the wages paid in excess of the FUTA limit amounted to $64,732. The gross FUTA tax imposed is computed as follows: Description Calculation 1. Total wages paid $99,625 2. Less: Wages not paid until 2021 Less: Wages paid in excess of 2020 FUTA limit ($10,000) (64,732) (74,732) 4. Total taxable wages $24,893 $24,893 5. Taxable wages Multiplied by the FUTA tax rate 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 assuming they have paid their SUTA on time. 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 Gulf Shores, Alabama: 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 2020 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 employer's 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. Description Calculation 1. Net FUTA tax: $24,893 (see above) x 0.6% $149.36 2. SUTA tax: $39,625 x 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 $65,618 in 2020 of which $38,599 are in excess of the FUTA limit. They have SUTA wages of $28,370 on the first $12,000 and an experience rating of 3.2%. Employer: Skateboards for All Net FUTA tax 1,621.14 x SUTA tax 384 X Total unemployment tax $ 1,983.60 X Lovin' Football is a football equipment store in St. Cloud, Minnesota. They paid wages of $77,344 in 2020 of which $48,340 are in excess of the FUTA limit. They have SUTA wages of $36,255 on the first $12,000 of wages and have an experience rating of 2.3%. Employer: Lovin' Football Net FUTA tax 1,740.24 X SUTA tax 444 X Total unemployment tax 2,188.20 x