Unemployment taxes are the taxes that employers pay the federal government and the state to fund unemployment compensation benefits to employees who are not working. Employers tax rates are based on the business type that the run.
This means the higher the employment rate goes the higher the tax is going to go for employers. Therefore, as an example let us say there is a medical office with a low turnover rate and a fast food restaurant with a high turnover rate. The fast food place would pay more in unemployment taxes than the medical office.
How Do Federal Unemployment Taxes Work?
Federal unemployment taxes, FUTA Taxes, are what employers pay based on their employees’ wages. Currently, the percentage is 0.6% for the first $7,000 wages annually. However, the maximum amount of federal unemployment tax that an employer would pay for an employee would be $42.
If you are a business, you will be required to pay unemployment taxes if either of the following applies to you:
- You have paid a wage of $1500 or more during the calendar year, or
- You had at least one employee for some part of the day for at least twenty weeks.
How Much Are FUTA Taxes?
The current FUTA tax rate is 6.0%. This rate is for the first $7,000 you pay each employer for wages. However, this is the federal rate. The state rate may be different. Usually, you can take a credit for the FUTA taxes that you have paid into state unemployment funds. The credit can be up to 5.4%. You are entitled to, the maximum credit if you paid your state unemployment taxes on time. However, if you do not pay the full amount then your credit may be decreased.
TurboTax will ask you simple questions and help determine if you need to pay futa tax for employees. TurboTax will also help you prepare and make W2 forms for your employees.
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