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Unit 6 [122: Payroll Accounting]
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Script
Welcome to your Unit 6 Homework Assistance video. In the class, you are assigned projects for each chapter. In this video, you will be reviewing a sample problem that will assist you as an example of how to approach your homework.
Chapter 5 covers Unemployment Compensation. In this chapter, you look at the basic requirements for an individual to be classified as an employer or an employee under the Federal Unemployment Tax Act and how to compute the federal unemployment tax and the credit against this tax.
For 2014 the employer’s tax rate is 6.0% of the first $7,000 of wages paid to each employee during the calendar year. Most employers get a credit up to 5.4% for making their state unemployment deposits on time and for filing the FUTA return in a timely manner. If a company gets the maximum credit then the actual FUTA tax paid is only .6% (6.0%-5.4%).
SUTA tax is State Unemployment Tax. In the text on pages 5-12 through 5-13 there is a chart that gives you the rates and the limits for each state. Employers pay SUTA tax and in some cases employees also pay SUTA.
You will look at two different problems to assist you in the calculations for FUTA and SUTA.
You will start with Problem 5-2B on page 5-43 in the textbook.
Yengling Company’s payroll for the year is $593,150. Of this amount, $211,630 is for wages paid in excess of $7,000 to each individual employee. The SUTA rate in Yengling Company’s state is 2.9% on the first $7,000 of each employee’s earnings. Compute:
a. Net FUTA tax b. Net SUTA tax c. Total Unemployment taxes
The first thing you have to do is to determine the amount that is actually subject to the FUTA and SUTA. In this case the total wages are $593,150 and $211,630 is over the $7,000 paid to each employee, so we deduct the excess from the total wages to get the amount that is taxable.
$593,150 - $211,630 = $381,520 this is the amount that is taxable for FUTA and SUTA
a. Net FUTA tax -- $381,520 x 0.6% (0.006) = 2,289.12 b. Net SUTA tax -- $381,520 x 2.9% (0.029) = 11,064.08 c. Total Unemployment taxes = 3,052.16 + 11,064.08 = $13,353.20
What you have to be careful of with FUTA and SUTA is if a company does business in more than one state. In this case, you have to multiply the tax rate for the applicable state times the taxable wages for the time period.