Small Businesses and Unemployment Tax
There are many small business taxes and unemployment tax is one of them. The two types of unemployment tax are SUTA, which is a State Unemployment Tax and FUTA, which is a Federal Unemployment Tax. Filing unemployment tax can be a complicated business as unemployment rates fluctuate throughout the financial year. This is especially the case for SUTA. It’s therefore important for small business owners to always be clear on what changes to file and when.
FUTA
To calculate the amount of unemployment tax that needs filing, start by working out how much each employee gets paid per annum. Once the total amount of wages paid has been calculated, calculate the exempt portions of payments. Be aware that these exempt portions include any benefits, pensions and retirements paid. As the FUTA tax only applies to the first $7,000 of income, any wages over $7,000 are also exempt, so add any such wages to the other exempt portions and subtract this total figure from the total amount of wages. The resultant figure is the total taxable FUTA wages. Multiply this number by .008 to get the total amount of FUTA tax due. Use all the calculations to fill in Form 940 for FUTA taxes.
SUTA
As is the case with FUTA, it is not necessary to pay SUTA taxes on an employee’s annual salary if it exceeds $7,000. For all other employees, business owners should check their state’s payroll tax instructions to find out what percentage of each employee’s pay they are required to pay in SUTA tax. States adjust this rate in accordance with factors such as the number of valid unemployment claims that have been filed by workers who’ve been laid off or fired. Calculate the amount of SUTA tax for each employee by multiplying the percentage of required tax by the employee’s gross salary. In this context, gross salary includes all tips, commissions and bonuses.
Online Filing
For some businesses it’s possible to file both FUTA tax and SUTA tax online. To file FUTA tax online go to efile on the IRS website. If the business’ income is low enough, filing will be free. Some states allow small business owners to file SUTA taxes through their Department of Revenue website. Although the majority of state forms for unemployment tax are similar to federal forms, requirements vary from state to state so it’s best to check the details with state authorities. If a state’s Department of Revenue doesn’t have an online option for paying and filing SUTA taxes, small business owners should contact the department by phone or email to ask about what forms are required and how taxes should be filed.
Although calculating and filing unemployment can be complex, small business owners can simplify the process by keeping their records in order throughout the year, maintaining transparency and honesty in the way they pay their employees and being organized come tax time. Filing both FUTA and SUTA online where possible will further simplify the overall process.
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