Federal Unemployment Tax
The Federal
Unemployment Tax Act (FUTA), together with state unemployment systems, provides
for payments of unemployment compensation to workers who have lost their jobs.
Most employers pay both a federal and a state unemployment tax. Only the
employer pays FUTA tax; it is not deducted from the employee’s wages.
Generally, employers can take a credit against FUTA tax for amounts paid into
state unemployment funds. This credit cannot be more than 5.4% of taxable
wages. Those entitled to the maximum 5.4% credit have an effective FUTA tax
rate of 0.8% after the credit. The IRS has tests to determine whether a
particular business must pay FUTA tax.
Federal Unemployment Tax
The Federal
Unemployment Tax Act (FUTA), together with state unemployment systems, provides
for payments of unemployment compensation to workers who have lost their jobs.
Most employers pay both a federal and a state unemployment tax. Only the
employer pays FUTA tax; it is not deducted from the employee’s wages.
Generally, employers can take a credit against FUTA tax for amounts paid into
state unemployment funds. This credit cannot be more than 5.4% of taxable
wages. Those entitled to the maximum 5.4% credit have an effective FUTA tax
rate of 0.8% after the credit. The IRS has tests to determine whether a
particular business must pay FUTA tax.
State Unemployment Tax
State unemployment
taxes are also paid by the employer and are not deducted from the employee’s
wages. Each state has a different rate and different wage limits from which the
taxes are calculated. For information on state-specific unemployment taxes and
contact information for the agency that administers your state’s unemployment
tax, use the Business Owner’s Toolkit.
Payroll Services
Generally, hiring a
payroll service is a very good idea. Businesses with hourly employees or employees earning commissions
can save time and money by using a payroll service. One of the chief benefits
is avoiding costly mistakes in payroll processing like failing to remit payroll
taxes in a timely manner. Payroll companies calculate the amount of each
paycheck and the tax obligations for employees; print the checks; and provide
reports.
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