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Unemployment Insurance

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Title: Unemployment Insurance


1
Unemployment Insurance
2
Agenda
  • Federal Unemployment Tax
  • Who pays FUTA
  • Exempt wages
  • Exempt Employment
  • FUTA Tax Rate Wage Base
  • Depositing Reporting FUTA tax
  • Calculating the State Credits
  • Form 940
  • Penalties for noncompliance

3
Agenda
  • State Unemployment Insurance
  • Employment Relationship
  • SUI Taxable wages
  • Contribution rates Experience rates
  • Voluntary Contributions
  • Joint or combined accounts
  • Unemployment Benefits Process
  • Reporting Requirements
  • State Disability Insurance
  • Multiple Worksite Reporting

4
Who must pay FUTA?
  • Nonfarm employers paying 1,500 or more in
    covered wages in any calendar quarter (current or
    preceding year)
  • Nonfarm employers employing at least one employee
    for at least one day in 20 different weeks(not
    consecutive) (current or preceding year)
  • Farm employers paying 20,000 or more in covered
    wages in any calendar quarter (current or
    preceding year)
  • Farm employers employing at least 10 employees
    for at least part of one day in 20 different
    weeks(not consecutive) (current or preceding
    year)
  • Employers paying domestic employees 1,000 or
    more in any calendar quarter (current or
    preceding year) for work in private home, college
    club, fraternity or sorority

5
Who does not pay FUTA
  • Easier to say who does not pay. . .
  • Federal, State and Local government employers
    including Indian Tribes
  • Nonprofit, religious, charitable or educational
    organizations that are tax exempt

6
Exempt Wages
  • Sick or disability benefits paid more than six
    calendar months
  • Sickness or injury payments made under a state
    workers comp law
  • Deferred comp payments, not elective deferrals
  • Payments made under a 125 flex plan-other than
    adoption or deferred compensation
  • Noncash payments for work outside the employers
    business
  • Qualified moving expense
  • Death or disability retirement benefits
  • Noncash payments to agricultural
  • workers
  • Reimbursement or provision for educational or
    dependent care assistance
  • The value of GTL(entire amount )
  • Value of deductible meals lodging provided by
    employer
  • Wages paid to a beneficiary after the year of an
    employees death
  • Tips not reported by an employee

7
Exempt Employment Types
  • Federal, state, local government employers
    including political subdivisions
  • Work on a foreign ship outside U.S.
  • Work by full time students at the school they are
    attending
  • Work for a foreign government or international
    organization
  • Student nurses or hospital interns
  • Insurance agents, commission only
  • Newspaper deliverers under 18
  • Non immigrant aliens under F, J, M or Q visas
  • Work for a spouse or child
  • Work performed by a child under 21 for their
    parents
  • Work by inmates of a penal institution
  • Work by election worker paid lt 1600 in 2013
  • Alien agricultural workers under an H-2A visa
  • Statutory nonemployees

8
FUTA Tax Rate / Wage Base
FUTA Tax rate is 6.0 Credit of up to 5.4
available for effective rate of .6
Rate is applied to the first 7,000 of an
employees covered wages
Tax is employer paid
A .2 surcharge, in effect since 1976, was due
to expire at the end of 2009. However, the
Worker, Homeownership and Business Assistance Act
of 2009 extended the surcharge through June 30,
2011. The .2 surcharge was allowed to lapse
effective July 1, 2011. Constructive payment
rules apply doesnt matter WHEN wages were
earned. DOES matter when they are PAID.
9
FUTA Tax Rate / Wage Base
If employers pay their state unemployment taxes
in full and on time a credit up to 5.4 can be
taken Full credit allows for tax calculation to
be .6 Maximum to be paid 7,000 x .6
42.00 per employee Payment by successor
companies based on the company application of the
Social Security tax payment however both
predecessor and successor must be covered under
FUTA. Common paymaster companies follow the same
practice as the withholding and payments for
Social Security and Medicare
10
Depositing Paying FUTA Tax
Employers can assume the credit for the first
three quarters of a calendar year thus
multiplying taxable wages by .6 --up to 7,000
wage base limit for a maximum of 42.00 per
employee If amount for all employees is 500 or
greater then the deposit is due respectively 1st
quarter--- April 30 2nd quarter-- July 31 3rd
quarter October 31 If under 500 then the
amount need not be deposited but carry over to
the next quarter until the threshold of 500 is
met . The final quarter when filing the 940 and
annual liability is reviewed Employer verifies
the actual credit percentage Adjusts if any
difference necessary Verifies 4th quarter
liability if lt 500 then can be paid with the
940 by January 31 if gt 500 must be deposited
separately by January 31
11
Calculating the credit
Two types of credit scenarios are available 90
or normal credit- 5.4 Additional credit
utilize the lesser rate of the state Regardless
of which option used State must have certified
unemployment insurance program The credit
utilized cannot exceed the 5.4
12
90 or normal credit
To claim the full 5.4 credit all deposits due
must be made as required by law with the final
payment being no later than when filing the
940. All State unemployment payments must be made
timely if sent to wrong state, proof of timely
submission will allow the credit. If payment is
late to the state, employer must calculate the
liability as Annual Liability amount 1600
Paid 1000 timely 600 late Timely state
payment 1000 x 100 1000. Late state
payment 600.00 x 90 540.00 Total credit on
the liability 1540.00
13
Additional Credit allowance
  • If an employer has a state unemployment rate that
    is less than 5.4 , the employer receives a
    credit for the difference between the FUTA credit
    of 5.4 and the state unemployment rate.
  • Example state unemployment rate is 3.6The
    additional credit is 5.4 - 3.6 1.8  
  • The additional credit allow employers with a
    stable employment history to receive the same
    credit as other employers.

14
Credit reductionsState loans for UI
  • States that have high unemployment may borrow
    funds from the federal agency to assist in
    benefit payments
  • The loans must be repaid by the end of the
    following year to avoid a credit reduction
  • If the loan is not paid in full by Nov 10th then
    a .3 reduction is imposed new credit rate would
    be .9
  • Each year a loan remains unpaid the credit
    reduction increases by an additional .3
  • After Nov 10th the IRS announces the credit
    reductions for that year and they are included on
    Form 940 Schedule A
  • 18 states plus the Virgin Islands were credit
    reduction states for 2012

15
Form 940
Annual filing form showing the company's FUTA
liability Due date is January 31st following the
year of the liabilities All forms must be
signed by an owner, president, vice president,
principal corporate officer, authorized partner
or fiduciary. Delivery must be made by mail,
delivery service or hand delivered to the
companys appropriate IRS office, assigned based
on where the business Is located, or if payment
is accompanying the form. Employers have an
automatic 10 day extension for filing their Form
940 as long as their liability each quarter was
paid in full and on time.
16
Amended 940
  • Send the corrected form, checking the box labeled
    Amended (Box a)
  • Attach a statement explaining why the amended
    return is necessary
  • Certification from state for credit allowance or
    credit reduction
  • If overpayment is claimed
  • Attach file 843Claim for Refund and Request for
    Abatement
  • If underpayment situation
  • Include check for underpayment amount along with
    appropriate late filing
  • percentage
  • Amended 940 cannot be electronically filed must
    be a paper form sent to IRS
  • Additional notes
  • Successor company needs to file and check the
    box labeled Successor Employer
  • Out of Business need to file, pay and check the
    box labeled Final Business closed or
  • Not paying wages

17
940 - Line by Line
General filing information Business name and EIN
must be on the top of each page If paper form
must use a 12 point Courier font Dollars posted
to the left and cents to the right of the decimal
Do not use dollar signs or decimalscommas are
optional Amounts on the form may be rounded If
rounding must be consistent Do not post 0
(zero) Leave blank If applicable ensure to check
the necessary box
18
940 - Line by Line
Part 1, Line 1a State abbreviation Part 1, Line
1b Multi-State employer Check box Must complete
Part 1 of Schedule A Part 1, Line 2 Credit
reduction status check box Must complete Part 2
of Schedule A Part 2, Line 3 Total payments to
all employees (all wages) Part 2, Line 4
Payments exempt from FUTA If there is an
amount on line 4 must check the applicable boxes
4a- 4e 4a-Fringe benefits this includes
qualified moving expenses (talk to AP) 4b- Group
Term Life 4c Retirement / Pension 4d
Dependent care 4e Other agriculture, visas,
workers comp, etc Part 2, Line 5Total of
payments made to each employee in excess of
7,000 Part 2, Line 6 Subtotal Total of exempt
payments (lines 4 5) Part 2, Line 7 Total
taxable FUTA wages (lines 3-6) Part 2, Line 8
FUTA tax before adjustments - (line 7 x .006)
19
940 - Line by Line
Part 3, Line 9 If all FUTA wages paid were
exempt from SUTA Must pay those wages
at full 6.0 ( line 7 x 5.4) Part 3, Line 10
If some FUTA wages paid were exempt from SUTA or
paid late complete the worksheet in the
instructions and transfer line 7 to line 10 on
940 Part 3, Line 11 If credit reduction applies
complete Schedule A and Transfer line 3
from Schedule A to Line 11 on the 940 Part 4,
Line 12 Total FUTA taxes after adjustments
(add lines 8-11) Part 4, Line 13 FUTA tax
deposited for the year Part 4, Line 14 Balance
due (line 12-13) Part 4, Line 15 Overpayment
(line 13-12)
20
940 - Line by Line
Part 5, Report your FUTA tax liability by
quarter only if line 12 is gt500 Part 5, Line 16
Report the FUTA tax liability for each
quarter This is the actual liability - not
deposit amounts Part 5, Line 17 - Total tax
liability for the year (add lines 16a- 16d Part
6 May we speak with your third party designee?
Designee may Give the IRS any information that
is missing from the form Ask the IRS for any
additional information about processing the
form Respond to certain IRS noticesmath errors
processing form Designee may not Receive
refunds Bind employer to anything Represent the
employer before the IRS in any other
matter Part 7 Sign here--- Must be signed
Paid preparer use only Vendor that has
completed the form
21
Schedule Aand 940 -V
Schedule A -- Multi-State employer and Credit
Reduction Information Part 1, Line 1 Check box
for every state in which you were required to pay
SUI tax Part 2, Line 2 Credit reduction for
specific states (add lines 2b,2d,2f) 18
credit reduction states in 2012 plus US Virgin
Islands Part 2, Line 3 - Total Credit
reduction 940-V Form 940 Payment
Voucher Utilized only when mailing a check with
the 940 Payment can be made via EFTPS Credit
card or Debit card payments can be made with one
of three authorized service providers. Payments
may be made via phone or internet. Provider
charges a fee based on amount of payment
22
Penalties for FUTA Noncompliance
Late filing of Form 940 addition to tax 5 of
the amount of tax required to be shown on the
return (reduced by timely deposits and credits)
for each month or fraction of month return is
late Maximum of 25 If fraudulent return
amounts increase to 15 up to a maximum of 75
Failure to pay FUTA tax- addition to tax .5
of the unpaid tax shown on the return( reduced by
credits) for each month or fraction of month
payment is late to a max of 25 An additional .5
per month on the amount if notice or demand is
issued and not paid within 21 days (10 days if
amount is at least 100,000) up to a max of
25 If not paid percentage increases to 1 --
if not paid within 10 days of a demand notice
issued with one day to pay or levy issued to
company signer
23
Penalties for Noncompliance
Failure to file and pay the addition for
failure to file is reduced by .5 of unpaid tax
assessed if both late deposit and late filing
occur Reasonable causeAffirmative statement
under penalty of perjury that the
employer exercised ordinary business care and
prudence and could still not pay or
file Accuracy related penalty Understating the
amount or mathematical errors could result in a
20 penalty on the understated amount Failure to
make timely deposits - Additional late penalty
is assessed based on a four tier scale 2
if the undeposited amount is paid within 5 days
of due date 5 if the undeposited amount is
paid within 6-15 days of the due date 10 if the
undeposited amount is paid more than 15 days
after the due date 15 if the undeposited amount
is not paid within 10 days of notice Beginning
in 2011, all federal tax deposits must be made
using EFTPS 10 penalty for not paying via EFTPS
(not applicable to employers who owe less than
500)
24
State Unemployment insurance
25
State Unemployment Insurance
  • Applicable for employees not independent
    contractors
  • Each state sets their own wage base and rate
  • Employers conducting business or services in
    multiple states need to allocate wages for
    unemployment purposes
  • Four factors when allocating
  • Are services localized? one primary location
    and other state activity is incidental, temporary
  • Does the employee have a base of operation? -
    office, reports to corporate office , etc
  • Is there a Place of Direction or control? no
    localization, no office, results to their
    superior where direction will be communicated
  • What is the employees state of residence? In
    rare cases where none of the aforementioned
    apply, the employees residential state is to be
    utilized.
  • Reciprocal agreements allow for employers to
    choose one state for payment when the employee
    travels between the states.

26
SUTA Taxable Wages
FUTA requires each states taxable wage base must
at least equal the FUTA taxable wage base of
7,000. Types of payments included as taxable
wages by the states generally follow the FUTA
taxable wage base. BUT dont ASSUME! States
can raise or lower their taxable wage base and
will usually notify employers of changes prior
to the beginning of the new tax year.
27
Contribution Rates Experience Rating
Contribution rate is the rate an employer applies
to its taxable payroll for each employee up to a
state determined wage base limit Experience
rating is the assessment of the contribution rate
based on the employers average annual taxable
wages and unemployment benefits charged
28
Methods to determine Experience Rate
Reserve Ratio primarily used account assigned
for company payments and reduced based on
benefits charged Reserve Ratio Unemployment
taxes paid Benefits charged
Average Taxable Payroll (the HIGHER the ratio,
the lower the tax rate) Benefit Ratio- 2nd most
used formula Benefit Ratio Benefits
charged Total
taxable payroll (the LOWER the ratio, the lower
the tax rate)
29
Methods to determine Experience Rate
Benefit wage ratio method Used in Delaware and
Oklahoma Benefit wage ratio Benefit wages paid
Total
taxable payroll (the LOWER the ratio, the lower
the tax rate) Payroll Stabilization Alaska
only state to utilize Fluctuation in payroll
from quarter to quarter either increases or
decreases the rate Surcharges may be
assessed if the state is experiencing high
unemployment, or has federal loan assistance.
The surcharge may or may not play a factor when
determining state credit against FUTA tax
liability, depending on the reason it was
established. New Employer Rate - employers
industry may be a factor in some states
30
SUTA Dumping Prevention Act 2004
  • Law created to eliminate the manipulation of
    state unemployment rates to achieve a lower
    employer tax rate (dumping the higher rate)
  • Law mandated each state enact state laws
    providing for the four factors
  • Mandatory transfers Unemployment experience must
    be transferred between common ownership companies
  • Prohibited transfersnew company cannot utilize
    the lower rate of selling company, a new company
    rate must be provided
  • Penalties for SUTA Dumping must have meaningful
    civil and criminal penalties for violating the
    transfer requirements
  • Procedures for identifying SUTA Dumping must be
    established by each state
  • Failure to have these controls will prohibit the
    state to be certified under the FUTA Act.

31
Noteworthy SUTA Laws
  • Non- profit and public sector generally follow
    one of two options
  • Direct reimbursementEmployer reimburses the
    state directly for any unemployment benefits
    charged to it
  • Choose to become experience rated (rare)
  • Employee contributions
  • Three states have plans that require employee
    contributions
  • Pennsylvania Alaska - New Jersey
  • Voluntary Contributions - 27 states allow
    additional payments into the fund account to
    lower the employers tax rate. States have strict
    guidelines and timetables and not all employers
    are eligible.

32
Joint or Combined Accounts
When employers have more than one subsidiary in a
state with separate FEINs, they may want to look
at joining the subsidiaries for unemployment
insurance purposes. With the right mixture of
good bad unemployment experience, combining
accounts may save the employer money. Not all
states offer the joint account option The states
that do allow the joint account option have very
strict guidelines
33
Unemployment Benefit Process
State Dept of Labor places guidelines and
conditions around granting Unemployment
Benefits DOL issued final ruling in 2007 to
limit states payment of unemployment
stating individual must be able and available
to work In most states, the base period is
the first 4 calendar quarters out of the 5
preceding the quarter during which the employee
first filed the claim for benefits Balanced
Budget Act of 1997 included a provision that
guarantees states the discretion to administer
base periods as they see fit Normal allowance is
26 weeks Federal government may grant an
emergency extension during periods of high
unemployment
34
Unemployment Benefit Process
  • American Recovery and Reinvestment Act of 2009
    states were offered federal incentive funding
    thru 2011 if they adopted ABP (Alternative Base
    Period) which looks at the immediately preceding
    four quarters of earnings
  • Incentive funding was also made available for
    states that enacted at least 2 of the following 4
    provisions
  • Coverage for part time workers
  • Coverage for workers who quit because of
    compelling family reasons
  • Coverage for workers in training programs
  • Dependent allowances
  • Part-time employees may qualify for benefits
    employees whose hours are reduced are eligible as
    long as they are not earning more than the weekly
    benefit amount
  • Other payments may reduce benefits holiday,
    vacation, dismissal or severance pay may delay a
    workers unemployment benefits in certain states

35
Unemployment Benefit Process
  • If employee worked for more than one employer
    during the base period, states can choose between
    4 different methods to allocate benefit charges
  • Percentage of base period wages paid to claimant
  • Claimants most recent employer receives full
    charge
  • Employer who paid claimant the most wages during
    the base period receives full charge
  • Most recent base period employer charged first
    (up to a maximum amount), then next most recent,
    etc

36
Auditing and Challenging Benefit Claims
One way that companies can lower their
expenditures for unemployment is to audit and
challenge claims in efforts to alleviate some
expenses. Periodic Statements provided by each
state to the Employer should be audited regularly
for errors and duplications Challenging benefit
claims Employer should challenge claims for
which they believe the former employee is
ineligible and respond to all notices and
requests for information from the state
37
Reporting Requirements
  • Each state requires employers to submit quarterly
    reports with some or all of the following
    information
  • Total wages paid
  • Taxable wages paid
  • Nontaxable wages paid
  • Number of employees each month
  • Gross wages for each employee
  • Taxable/Nontaxable wages breakdown for each
    employee
  • Number of weeks worked by each employee
  • Many states require employers to file their
    quarterly wage information on some type of
    magnetic media tape, cartridge, or diskette
    or electronically file over the internet.

38
Multiple Worksite Reporting
  • Additional mandatory quarterly filing when an
    employer has multiple worksites
  • MWR (Multiple Worksite Reporting) breaks down the
    employment and wages by
  • locality and industry
  • Filed with the State Employment Security agency
  • The information is used by the Federal Bureau of
    Labor Statistics (BLS)
  • Mandatory vs. Voluntary reporting 27 states
    have mandatory Multiple Worksite
  • Reporting requirements. Standardization of the
    form has streamlined
  • the process.
  • A mandatory MWR employer
  • Uses one unemployment insurance account number
    for all its employees
  • Has more than one worksite, or conducts multiple
    activities
  • Has a total of at least 10 employees at all its
    secondary locations
  • Magnetic filing and internet options can be
    obtained at the Bureau of Labor Statistics
    website and publications.

39
State Disability Insurance
California, Hawaii, New Jersey, New York, Rhode
Island and Puerto Rico have State Disability
Insurance programs to provide benefits to
employees who are temporarily disabled by
nonwork-related illness or injury Paid family
leave in California began in 2004 Family leave
insurance in New Jersey benefits available as
of July 1, 2009 Contributions SDI is funded by
the employee and may include an amount to be
funded by the employer
40
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