One of the things any payroll (or 1099) accountant must keep up with is unemployment taxes. These taxes are paid by the employer, and cover the cost of unemployment benefits paid to workers. You are responsible for both federal and state unemployment taxes, which is why it is important to understand the difference.
Federal Unemployment Tax Act
The Federal Unemployment Tax Act (FUTA) requires businesses to offset the cost of federal unemployment insurance. Federal funds differ from state funds in that they are typically used to pay for unemployment extensions that are granted by the federal government.
To determine your tax rate, you must first file an IRS form 940. This form is submitted once a year, and is designed to help you calculate your tax rate. Even though the form is filed annually, you are still responsible for making quarterly payments on the amount you are deemed liable for.
State Unemployment Tax Authority
The biggest chunk of unemployment taxes will be paid through State Unemployment Tax Authority or SUTA taxes. The amount of this tax varies, as each state has different tax rates and limits on income that can affect an employer’s liability. Most state revenue agencies have a form that is similar to the IRS form 940 that must be filed in order to determine the amount you owe. As with federal unemployment taxes, quarterly payments must be made to the state in order to remain in compliance.
There are several factors that can affect the amount of FUTA or SUTA tax you owe. In addition to keeping payments straight, knowing how these amounts are calculated can save your business a great deal of money over the long run. Rather than trying to keep up with all these figures, you should consider outsourcing your payroll functions to a reliable company such as checkissuing.com.