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GLENCOE / McGraw-Hill

GLENCOE / McGraw-Hill. Payroll Taxes, Deposits, and Reports. Unemployment Tax and Workers’ Compensation. Section Objectives. 6. Compute and record liability for federal and state unemployment taxes and record payment of the taxes.

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GLENCOE / McGraw-Hill

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  1. GLENCOE / McGraw-Hill

  2. Payroll Taxes, Deposits, and Reports

  3. Unemployment Tax and Workers’ Compensation Section Objectives 6. Compute and record liability for federal and state unemployment taxes and record payment of the taxes. 7. Prepare an Employer’s Federal Unemployment Tax Return, Form 940 or 940-EZ. 8. Compute and record workers’ compensation insurance premiums.

  4. Page 401 Unemployment Compensation Insurance Taxes

  5. QUESTION: What is the unemployment insurance program? ANSWER: The unemployment insurance program is a program that provides unemployment compensation through a tax levied on employers. Page 401

  6. Page 401 Coordination of Federal and State Unemployment Rates

  7. Page 401 The federal government allows a credit (reduction) in the federal unemployment tax for amounts charged by the state for unemployment taxes. SUTA = state unemployment tax FUTA = federal unemployment tax

  8. QUESTION: What is an experience rating system? ANSWER: An experience rating system is a system that rewards an employer for maintaining steady employment conditions. Page 401

  9. Page 401 Under the experience rating system, the state tax rate may be reduced to less than 1 percent for businesses that provide steady employment. In contrast, some states levy penalty rates as high as 10 percent for employers with poor records of providing steady employment.

  10. Page 401 The reduction of state unemployment taxes because of favorable experience ratings does not affect the credit allowable against the federal tax.

  11. On Line Furnishings CompanyB CompanyC FUTA tax rate 6.2% 6.2% 6.2% (Less) SUTA tax rate (5.4%) (5.4%) (5.4%) 0.8% 0.8% Net FUTA tax rate 0.8% Experience rating 4.0% 5.0% 6.0% Total taxes 4.8% 5.8% 6.8% Page 401 The SUTA – FUTA Connection Without the experience rating system, total taxes for each company would be 6.2%.

  12. Page 402 Computing and Recording Unemployment Taxes

  13. Page 402 Objective 6 Compute and record liability for federal and state unemployment taxes and record payment of the taxes.

  14. GENERAL JOURNAL PAGE 1 POST. DATE DESCRIPTION REF. DEBIT CREDIT Jan. 8 Payroll Taxes Expense 94.08 Federal Unemployment Tax Payable 15.68 State Unemployment Tax Payable 78.40 Unemployment taxes on weekly payroll Page 402 On Line Furnishings The unemployment taxes for the payroll period ending January 6 are as follows. Federal unemployment tax ($1,960 x 0.008) = $15.68 State unemployment tax ($1,960 x 0.040) = 78.40 Total unemployment taxes = $94.08

  15. Page 402 Reporting and Paying State Unemployment Taxes

  16. Page 402 In most states the due date for the unemployment tax return is the last day of the month following the end of the quarter. Generally the tax is paid with the return.

  17. Page 402/403 • Block 4 at the top of the form shows the tax rate assigned by the state based on the experience rating.

  18. Page 402/403 • Block 10 (3 boxes) shows the number of employees in the state on the 12th day of each month of the quarter.

  19. Page 402/403 • Line 13 shows the total wages paid during the quarter to employees in the state.

  20. Page 402/403 • Line 14 shows the total taxable wages paid during the quarter.

  21. Page 402/403 • Line 15 shows the total tax for the quarter. Taxable wages are multiplied by the tax rate ($25,480 x 0.04).

  22. Page 402/403 • Lines 16a and b are a breakdown of the amount on Line 15. In Texas, part of the 4 percent tax is set aside for job training and other incentive programs.

  23. Page 403/404 • Lines 17 and 18 are blank. There are no penalties or interest because no taxes or reports are past due.

  24. Page 403/404 • Line 19 is blank. There is no balance due from prior periods.

  25. Page 403/404 • Line 20 shows the tax due.

  26. Page 404 Earnings in Excess of Base Amount In this textbook example, state unemployment tax is paid on the first $7,000 of annual earnings for each employee.

  27. Earnings over $7,000 are not subject to state unemployment tax. Earnings Cumulative TaxableEarnings Earnings Page 404 First quarter $4,680 $4,680 $4,680 April 1,440 6,120 6,120 May, week 1 360 6,480 6,480 May, week 2 360 6,840 6,840 May, week 3 360 7,200 7,000 May, week 4 360 7,560 7,000

  28. Page 404 Reporting and Paying Federal Unemployment Taxes

  29. Page 404 Depositing Federal Unemployment Taxes There are two ways to make federal unemployment tax deposits: • Electronic deposits using EFTPS • Federal Tax Deposit Coupon, Form 8109 Deposits are made quarterly and are due on the last day of the month following the end of the quarter.

  30. Page 404 The federal unemployment tax is calculated at the end of each quarter. It is computed by multiplying the first $7,000 of each employee's wages by 0.008. A deposit is required when more than $100 of federal unemployment tax is owed. If $100 or less is owed, no deposit is due.

  31. Page 405 Objective 7 Prepare an Employer’s Federal Unemployment Tax Return, Form 940 or 940-EZ.

  32. QUESTION: What is Form 940 or 940-EZ? ANSWER: Form 940 or 940-EZ is the Employer’s Annual Federal Unemployment Tax Return form. It is a preprinted government form. Page 405

  33. Page 405 Tax returns are not due quarterly for the federal unemployment tax. The employer submits an annual return.

  34. Page 405 When can Form 940-EZ be used instead of Form 940? • Businesses can use Form 940-EZ if • They paid unemployment tax to only one state. • They paid all federal unemployment taxes by January 31 of the following year. • All wages that were taxable for federal unemployment were also taxable for state unemployment.

  35. Page 405/406 • Line A shows the total state unemployment tax paid.

  36. Page 406/407 PART I: Taxable Wages and FUTA Tax • Line 1 shows the total compensation paid to employees.

  37. Page 406/407 • Line 2 is blank because there were no exempt payments for On Line Furnishings.

  38. Page 406/407 • Line 3 shows the compensation that exceeds the $7,000 earnings limit ($101,920 - $35,000). 5 employees x $7,000 = $35,000

  39. Page 406/407 • Line 4 shows the wages not subject to federal unemployment tax.

  40. Page 406/407 • Line 5 shows the taxable wages for the year.

  41. Page 406/407 • Line 6 shows the FUTA tax ($35,000 x 0.008).

  42. Page 406/407 • Line 7 shows the FUTA tax deposited during the year.

  43. Page 406/407 • Line 8 shows the balance due. On Line Furnishings deposited the taxes during the year so there is no balance due.

  44. Page 406/407 • Line 9 is blank because there is no overpayment.

  45. Page 405/406 PART II: Record of Quarterly Federal Unemployment Tax Liability Part II shows the FUTA tax due for each quarter. The total for the year must equal Line 6.

  46. Page 408 Workers’ Compensation Insurance

  47. Page 408 Objective 8 Compute and record workers’ compensation insurance premiums.

  48. Page 408 Workers' compensation provides benefits for employees who are injured on the job. The insurance premium, which is paid by the employer, depends on the risk involved with the work performed.

  49. Page 408 There are two ways to handle workers' compensation insurance: • Pay an estimated annual premium in advance • Pay a deposit at the beginning of the year and make monthly payments The method a business uses depends on the number of its employees.

  50. Page 408 On Line Furnishings has two work classifications: • Office work • Shipping work The workers’ compensation premium rates are Office workers $0.40 per $100 of labor costs Shipping workers 1.20 per $100 of labor costs

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