Discuss about the employment tax in U.S.A.
According to the United States’ Federal Law, the government imposes federal employer tax
This tax is imposed under the FUTA which is called Federal Unemployment Tax Act. It provides relevant funds to the workforce agencies at state level. (Accountingcoach, 2016).Amount collected through this process is used for payment of unemployment compensation. This is used for those personnel who have lost their jobs. The employers are required to pay this tax by filling a form called Form 940 which is filled to report the annual FUTA tax of the employers (Bizfilings, 2016). Most of the employers have to pay federal as well as state unemployment tax but it cannot be deducted from the wages of the employees. As per the FUTA, the Federal government is required to administer the insurance of unemployment in every state. During the time when the unemployment is high, FUTA makes payment to the workers who are unemployed. The payment amounts to half of the cost provided to the workers who are unemployed which can be viewed as extended unemployment benefit (IRS, 2016). The states may obtain funds as loan to pay benefits to the unemployed workers from the FUTA if required. In this paper, tax proclamations on the Unemployment tax will be discussed. The practical application of the unemployment tax will be discussed in detail.
FUTA or federal unemployment tax states that IRS (internal revenue service) is authorized for collection of tax known as federal employer tax. This will be treated as a fund for the state agencies who are engaged in the workforce. Law of United States, FUTA is applicable on the income from services performed within the U.S. (Turbo Tax, 2015). Based on the clauses of the FUTA, the employers must have to pay unemployment taxes for the benefits of the employees (DoL, 2016). For example, an employer owes unemployment taxes if he or she had paid at least $1500 in wages during any quarter of a calendar year, in the current or previous year. The rate of FUTA is 6% and if the employers pay state unemployment taxes, they are liable to take credit of up to 5.4% of the taxable income. The state unemployment tax is used to pay the benefits to the eligible unemployed workers. The unemployment tax is practically applicable on the unemployed workers who have lost their jobs. It provides financial support to the unemployed workers for supporting their family during the jobless period. State unemployment insurance agencies determine the category of the activity to be considered as employment by using their own laws for state unemployment insurance (EY, 2014).
There are several categories characterized by the State UI agencies such as domestic employers' coverage or employers of agricultural employees. In domestic employers' coverage, the employers must have to pay state and federal unemployment taxes in case they are paying total of $1000 or more as cash wages to the household workers in any quarter of the calendar year of the current or the previous year. The examples of household workers are caretakers, drivers, private nurses, etc. In case of agricultural employees, federal employment taxes will be paid by the employer in respect to employees. If in any quarter wages paid by the employer is more than $20000, then it is compulsory to pay federal tax. Provisions of the law will also apply if more than $20000 has been paid in the previous year. In general, agriculture employers are also applicable for the state unemployment taxes and all the information related to the exact requirements, for being applicable to the unemployment taxes, can be collected from the state workforce agencies (Illinois Department of Revenue, 2016).
The recent proclamations regarding the unemployment tax were announced in November 2015 by the department of the United States which deals in labour law. The department announced that the employers of the three states and the Virginia Islands will have to pay their FUTA taxes for the accounting year 2015. These taxes will have to be paid at a higher FUTA tax rate, compared to the employers of rest of the states. This is so because the above mentioned states failed to make the repayment of the federal unemployment loans of insurance by the end of November 2015 (EY, 2016). As per the act, the increased rate will be applicable from the fourth quarter of the accounting year 2015. Those states, who repaid the loans without any delay i.e. before the end of November 2015, were not required to make the payment of any FUTA credit reduction for the accounting year, 2015.
The Social Security Act requires a reduction in the FUTA tax credit when a state has federal loans for two consecutive years. The reduction in the FUTA tax credit remains to be 0.3% for the first year and the same exceeds for the following years until the loan is repaid to the Federal government. The law of the Federal government prevents the states from carrying their loan balances over a period of many years. They have the policy to decrease the FUTA credit. FUTA credit will be reduced at the beginning of the fifth year. This concept is also known as BCR or in other words Benefit Cost Rate
Penalty of the BCR may be surrendered if the governor of the State has given an application till 1st July. Further, no actions have been taken to eradicate the unemployment.
According to the report for financial year 2014-2016, taxable wage base relating to SUI as well as the SUI withholding rates relating to employees are applicable for the United States.
The preliminary wage bases for the year 2016 have been provided. For example, In Alaska, the SUI taxable wage bases are as follows
- For Financial year 2014 applicable amount is $37,400
- For Financial year 2015 applicable amount is $38,700
- Moreover for financial year 2016 wage base for preliminary purpose is $39700
According to the act the contribution rate per employees is 0.5%. Further, Withholding rate relating to the SUI is 0.425%. This limit is applicable till wage amount is up to $32600. This rate is progressive in nature. It stares that as the wage amount increases the rate will also increase accordingly.
From the above report it can be said that United States is concerned relating to the unemployment within the nation. In order to eradicate the unemployment problem government has established an act known as FUTA act. This act is related to the wage payment of the employer on behalf of the employees. This act is applicable on each every resident of the United States. Citizenship of the employees does not make any difference while imposing this act. This act is also applicable if service is provided by the person outside the nation. If the person is citizens of US then this act will be applicable irrespective of the fact that whether service is provided in US or outside the nation. Proclamations related to the unemployment tax prevents the states from carrying their loan balances continue for a long period of time by reducing the FUTA credit in the beginning of the fifth year of the loan. The announcement by the U.S. Department of Labor in 2015 declared that the states who have failed to repay their loans to the Federal government will have to pay higher FUTA rate as a penalty to the failure. Such announcements prevent the states from carrying the loan balances for longer period of time. Thus, the laws related to the unemployment taxes are stringent in order to provide financial support to the unemployed workers during their jobless period (TWC, 2016).
Accountingcoach, 2016. What is the FUTA tax? [Online] Available at: https://www.accountingcoach.com/blog/futa-tax [Accessed 25 June 2016].
Bizfilings, 2016. Employer liability for unemployement taxes. [Online] Available at: https://www.bizfilings.com/toolkit/sbg/tax-info/payroll-taxes/employer-liability-for-unemployment-taxes.aspx [Accessed 25 June 2016].
DoL, 2016. Unemployment Insurance Tax Topic. [Online] Available at: workforcesecurity.doleta.gov/unemploy/uitaxtopic.asp [Accessed 21 June 2016].
EY, 2014. World Wide Personal Tax Guide. EY.
EY, 2016. US employment tax rates and limits for 2016 Preliminary as of January 6, 2016. Ey.com.
Illinois Department of Revenue, 2016. ILLINOIS INCOME TAX ACT AS AMENDED THROUGH PUBLIC ACT 99-0423. [Online] Available at: www.revenue.state.il.us/legalinformation/iita.pdf [Accessed 24 June 2016].
IRS, 2016. Unemployment Compensation. [Online] Available at: https://www.irs.gov/individuals/employees/unemployment-compensation [Accessed 25 June 2016].
Turbo Tax, 2015. Guide to Unemployment and Taxes. [Online] [Accessed 25 June 2015].
TWC, 2016. Unemployment Tax. [https://www.twc.state.tx.us/businesses/unemployment-tax] [Accessed 25 June 2016].
Weiss, A., 2008. The Galileo Paradigm, Form #11.303. Sovereignty Education and Defense Ministry (SEDM).