Federal Unemployment Tax Act
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The Federal Unemployment Tax Act (or FUTA, 26 U.S.C. ch.23) is a United States federal law that imposes a federal employer tax used to fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. In some cases, the employer is required to pay the tax in installments during the tax year.
FUTA covers the costs of administering the unemployment insurance (UI) and job service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.
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[edit] Calculation of amount of tax
For years through December 31, 9, the FUTA imposes a 6.2% tax on the first $7,000 of gross earnings of each worker per year. [1] Once the worker's earnings reach $7,000 during a given year, the employer no longer pays any Federal unemployment tax for that year with respect to that worker. Certain credits are allowed with respect to state unemployment taxes paid that may reduce the effective rate to 0.8%.
[edit] Wages exempt from FUTA
The following wages are exempt from Federal Unemployment Tax Act payments.
- Wages for services performed outside the United States.[2]
- Wages paid to a deceased employee or a deceased employee's estate in any year after the year of the employee's death.[2]
- Wages paid by a parent to a child under age 21, paid by a child to a parent, or paid by one spouse to the other spouse.[2]
- Wages paid by a foreign government or international organization.[2]
- Wages paid by a state or local government or by the United States federal government.[2]
- Wages paid by a hospital to interns.[2]
- Wages paid to newspaper carriers under age 18.[2]
- Wages paid by a school to a student of the school.[2]
- Wages paid by an organized camp to a student.[2]
- Wages paid by non-profit organizations.[3]
[edit] See also
[edit] Notes
- ^ See 26 U.S.C. § 3301. Note: As of mid April 2008, the text of the statute in the linked material at the Legal Information Institute at Cornell University Law School has not yet been updated to reflect amendments to the Internal Revenue Code made by paragraphs (1) and (2) of subsection (a) of section 1501 of the Energy Independence and Security Act of 2007, Pub. L. No. 110-140 (Dec. 19, 2007), which makes the 6.2% rate applicable to 2008 compensation with the 6.0% rate applicable beginning in 2009.
- ^ a b c d e f g h i "Publication 15: (Circular E) Employer's Tax Guide" (PDF). Internal Revenue Service. United States Department of the Treasury. 2009. http://www.irs.gov/pub/irs-pdf/p15.pdf.
- ^ "Publication 15-A: Employer's Supplemental Tax Guide" (PDF). Internal Revenue Service. United States Department of the Treasury. 2009. http://www.irs.gov/pub/irs-pdf/p15a.pdf.
[edit] External links
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