How to Calculate 2018 FUTA and SUTA taxes - What Employers need to know and do for 2018.
Federal Unemployment Rate Unchanged from 2017 (read update below)
FUTA is an acronym for the Federal Unemployment Tax Act, and SUTA stands for State Unemployment Tax Authority.
The Federal Unemployment Tax Act, or FUTA, is one of several payroll taxes that employers must pay on their employees. The tax provides for payments of unemployment compensation to employees who have lost their job. Unlike the state and federal income taxes withheld from an employee's paycheck, paying FUTA taxes is the responsibility of the employer.
Large increase in Social Security Rates in 2017.
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Who Has to Pay FUTA Tax?
If you answer yes to either of the below questions, then you must pay FUTA tax:
Did you pay wages of $1,500 or more to employees in any calendar quarter during 2018?
Did you have one or more employees for at least some part of a day in any 20 or more different weeks in 2018? (TIP: Be sure to count all full-time, part-time, and temporary employees).
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- Determine whether you must pay FUTA tax for your employees. Consult IRS Publication 15, page 29, to see if you meet the criteria for any of the three tests prescribed therein. These tests pertain to the amount of wages paid per calendar quarter, household employees and farm workers. If you meet the criteria for any one of these tests, you must pay FUTA taxes for your employees. W-4 Forms.
- For SUTA taxes, find your state unemployment office by looking in the appendix to IRS Publication 926. As an employer, you are required to file state unemployment taxes on a quarterly basis.
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Calculate FUTA tax by multiplying the first $7,000 an employee earns by 6.0 percent. x $7,000 = $42. This is the amount of FUTA tax that an employer must pay for the employee making at least $7,000 must pay each year. However by paying state unemployment timely you are allowed a credit up to (for i.e. 5.4% for Florida) which brings your Futa tax to $42 per employee. See explanation below.
Certain income is exempt from FUTA taxes and does not count towards the $7,000 base. Mileage reimbursement, insurance premiums and other fringe benefits, in general, do not count. A complete list of what counts and what doesn't count can be found in Publication 15 (Circular E) http://www.irs.gov/pub/irs-pdf/p15.pdf and Publication 15-A (Supplement to Publication 15 Circular E) http://www.irs.gov/pub/irs-pdf/p15a.pdf. These publications can also further help to explain FUTA taxes.
Family members may be exempt from FUTA taxes. Children employed by parents, parents employed by children, and spouses employed by spouses may be exempt depending on the type of business owned. Publications 15 (Circular E) and 15-A (Supplement to Publication 15 Circular E) explain this in more detail.
When and how are FUTA Taxes are paid
Generally, FUTA tax liability that exceeds $500 should be paid quarterly to the IRS. You may carry over amounts of $500 or less into the next quarter and make the deposit when the balance exceeds $500. FUTA taxes must be paid quarterly by the last day of the month following the end of a calendar quarter: April 30, July 31, October 31 and January 31. On April 30, for example, you would pay FUTA taxes owed during January, February, and March. If you're a company that has yearlong employees, the majority of your FUTA expenses will be made during the first quarter. Employers must report their FUTA tax liability annually to the IRS on Form 940. Payments for FUTA taxes must be submitted through the Electronic Federal Tax Payment System (EFTPS). Circular E contains detailed instructions on paying and reporting federal unemployment tax.
Summary Table of FUTA Tax Payments Due Dates
If your undeposited FUTA tax is more than $500 on... Your tax payment is due March 31 April 30 June 30 July 31 September 30 October 31 December 31 January 31 Example: Let’s say you are a New York-based business with 11 employees. Your total FUTA taxes are $462 on March 31 ($42 for each employee). You do not have to submit a FUTA payment yet because your taxes are below the $500 minimum. Let’s say by April 30, you hire 3 additional employees and have a total of $588 in FUTA taxes. Your payment is due on July 31 which is the next payment due date. On July 31, you would remit the $462 accumulated from the first quarter plus any additional tax accumulated in April, May, and June.
Note: Small business owners get a break from the IRS on FUTA taxes. The IRS normally requires businesses to pay FUTA taxes quarterly. However, for many small businesses this may not be necessary. This is because the IRS only requires a payment if the FUTA taxes owed are more than $500. If the taxes owed are less than $500 (which will be the case for many small businesses) then the balance can be carried over to the next quarter. This can be done until the end of the year, or until at least $500 in taxes are owed.
Sample IRS 940 Form - https://www.irs.gov/pub/irs-prior/f940--2015.pdf
By contributing SUTA taxes for your employees for their state unemployment contributions.
As an employer you can take a credit of up to 5.4 percent of their taxable wages against their FUTA contribution provided your SUTA is paid in a timely manner. In the event your SUTA tax is less than 5.4%, you still get the maximum full credit against the FUTA tax. Employers who make the maximum permissible SUTA contributions are left with an effective FUTA tax rate of 0.6 percent, or $42 per year. However, your state has to be in good standing with the federal government and the employee must pay the SUTA tax in a timely manner to get the credit. Each state has its own new employer rate for new businesses. The length of time that new employers are subject to this rate also varies. Contact your state unemployment office for information on new employer rates.
Calculating FUTA and SUTA tax - FUTA & Form 940: What Employers Need to Know for 2018 (Unchanged from 2017
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FUTA Credit Reductions for 2015
The Department of Labor (DOL) has released its final list of credit reduction states for 2015:
- California – 1.5% FUTA credit reduction.
- Connecticut – 2.1% FUTA credit reduction.
- Ohio – 1.5% FUTA credit reduction.
- U.S. Virgin Islands – 1.5% FUTA credit reduction.
You calculate the SUTA tax by finding the wage base in your state. New employees are assigned an initial lower rate of withholding, the exact rate varies from state to state, for the first year or two. Then the withholding is reduced if the employee has not drawn unemployment benefits or increased if benefits have been collected. In most cases, the SUTA tax rate is ultimately determined by the number of unemployment claims the state has received from taxpayers who formerly worked for you. The rate usually starts at the highest level and decreases if few of your ex-employees file for benefits. However, when state UI funds are depleted, as occurred in many states in recent years, states draw from a designated Federal loan account. If such loans are not repaid within two consecutive years, part of the 5.4% FUTA tax credit is reduced, thereby increasing the effective FUTA tax rate in those states.
When this credit reduction applies, the FUTA tax typically increases by 0.3%, or $21 per worker, payable in January of the following calendar year with IRS Form 940. This credit is further reduced annually by 0.3% until loans are repaid. The United StatesDepartment of Labor has identified the states that are subject to FUTA credit reduction for 2014.
Note: DOL runs the loan program and announces any credit reduction states after the November 10 deadline each year. DOL has information about the credit reduction states and loan balances on the UI Statistics page of its Department of Labor website.
Employers in the following states will be subject to a reduction in FUTA credit on their IRS Form 940 for 2014: |
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| Credit Reduction | Total FUTA Rate 2014 | |||||||
| California | 1.2% | 1.80% | ||||||
| Connecticut | 1.7% | 2.30% | ||||||
| Indiana | 1.5% | 2.10% | ||||||
| Kentucky | 1.2% | 1.80% | ||||||
| New York | 1.2% | 1.80% | ||||||
| North Carolina | 1.2% | 1.80% | ||||||
| Ohio | 1.2% | 1.80% | ||||||
| Virgin Islands | 1.2% | 1.80% | ||||||
Source U.S. Department of Labor
SUTA Wage Bases
State unemployment insurance taxes are based on a percentage of the taxable wages an employer pays.
The Federal Unemployment Tax Act (FUTA) requires that each state’s taxable wage base must at least equal the FUTA wage base of $7,000 per employee, although most states’ wage bases exceed the required amount.
Some states apply various formulas to determine the taxable wage base, others use a percentage of the state’s average annual wage, and many simply follow the FUTA wage base.
SUTA Wage Bases from 2015 to 2016
At this time, the following state jurisdictions have decided to change the taxable wage base limits for 2016:
- Colorado $11,800 to $12,200
- lowa $27,300 to $28,300
- Kansas $12,000 to $14,000
- Kentucky $9,900 to $10,200
- Michigan $9,500*
- Minnesota $30,000 to $31,000
- Montana $29,500 to $30,500
- Nevada $27,800 to $28,200
- New Jersey $32,000 to $32,600
- New Mexico $23,400 to $24,100
- New York $10,500 to $10,700
- North Carolina $21,700 to $22,300
- North Dakota $35,600 to $37,200
- Oklahoma $17,000 to $17,500
- Oregon $35,700 to $36,900
- Pennsylvania $9,000 to $9,500
- Rhode Island $21,200 to $22,000**
- Utah $31,300 to $32,200
- Vermont $16,400 to $16,800
- Washington $42,100 to $44,000
- Wyoming $24,700 to $25,500
*Michigan – Effective third quarter 2015, the taxable wage base decreases to $9,000 for contributing employers that are not delinquent on UI payments (i.e., most employers).
**Rhode Island – The 2016 taxable wage base for employers in the highest UI tax rate group is $23,500.
Not all states have reported their 2016 wage base, so please visit our page for a complete list of SUTA wage bases for 2016.
Employers who think they may be in a credit reduction state should plan accordingly for the lower credit. The IRS includes the credit reduction states, the applicable credit reduction rates, and an example in the Schedule A (Form 940) (PDF), Multi-State Employer and Credit Reduction Information. The Instructions for Form 940 (PDF) also has information about the credit reduction and deposit rules.
Source IRS
THE ADMINISTRATION'S FY 2016 BUDGET RELEASED LAST WEEK WOULD INCREASE EMPLOYERS' STATE AND FEDERAL UNEMPLOYMENT TAXES
Following are several of the more impactful provisions in the President's budget proposal for FY 2016:
Following are several of the more impactful provisions in the President's budget proposal for FY 2016:
The net federal unemployment tax rate for 2016 would increase from 0.60% to 0.80% of taxable payroll, and the taxable wage limitation would remain $7,000 for 2016. The federal unemployment tax payable would effectively increase from $42 per full-time employee to $56 per full-time employee for 2016 only.
An employer's guide to the
Administration's fiscal year 2016 budget
Repeal of FICA tip credit
Repeal of FICA tip credit
Currently, food and beverage businesses are allowed to claim a nonrefundable business tax credit for the employer's share of Social Security and Medicare (FICA) taxes paid on the portion of employee tips in excess of $5.15 per hour (after including the employee's non-tip wages).
The budget report states that this credit is inefficient and inequitable and encourages business to pay employees in the form of tips rather than wages and has had done little to improve employer compliance with the tip reporting requirements. Accordingly, it is proposed that this business tax credit be repealed effective January 1, 2016.
The Department of Labor will announce in November 2015 whether additional 2015 FUTA tax rates will apply in certain states. Employers in credit reduction states will pay their increased 2015 FUTA taxes with their 2015 IRS Form 940 filed in January 2016.
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Please note: Our explanation that are provided on our web site for "How to Calculate Futa and Suta taxes" are only meant to provide general guidance and estimates about the payroll process. They should not be relied upon to calculate exact taxes, payroll or other financial data. You should consult with a professional advisor or accountant regarding your specific payroll concerns.
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