How to Calculate Your Federal Unemployment Tax (FUTA)

When people lose their jobs, the Government of the United States tries to help out those who have lost their jobs and are unemployed. FUTA (The Federal Unemployment Tax Act) was created as a precaution to help those unemployed workers to have some sort of financial relief from their burdens. FUTA and the state unemployment systems have provided payments of unemployment compensation to those workers who have lost their jobs and are currently financially struggling. Employers have to usually pay both state and federal unemployment taxes. These payments will have to come straight from the employer, and nothing is deducted from their employees’ wages.

SUTA Tax:

In order to submit your FUTA tax to the IRS, employers must calculate their employees SUTA (State Unemployment Tax Authority) tax first, because the IRS will allow you, as an employer, to obtain tax credit for the SUTA taxes you pay to your state’s department of revenue.

FUTA Tax:

The FUTA tax is 6% of any employee’s wage, and the 6% is deducted only up to $7,000 of that employee’s wage. So let’s say you have an employee that is earning up to $8,300 in gross salary, you have the take $7,000 and multiply that by 6% to get $420 in FUTA tax deduction (7,000 * .06).

Figuring Out Your FUTA Tax

In order to file for your SUTA tax, you have to grab the proper documents for filing them from your state department of revenue, and obtain information on how to file your SUTA tax. Each SUTA tax will be calculated duly to your states rules and regulations.

The next thing you need to do is figure out your employee’s gross wage, which will include their salaries, tips, bonuses, and commission. Reimbursements, such as mileage or uniform reimbursements should not be calculated into the tax form.

Next, calculate your FUTA tax numbers: Remember that the FUTA tax is 6% of employees’ wages, again, calculate the tax only up to $7,000 in employee’s gross salary.

In order to calculate your SUTA tax properly, you will need to follow your states rules on how much tax is applied. Normally, you will have to multiply your employees wage bound by the FUTA tax (up to $7,000) to the SUTA tax number that is regulated by your state department of revenue.

Let’s say that the state department imposes a 5% SUTA tax rate. If your gross salary was $8,300, you will take up to $7,000 of the $8,300 and multiply that by 5% which will give you the SUTA tax product of $350 (7,000 * .05).

After calculating your FUTA and SUTA tax numbers, and since you will be getting a tax credit back from your state on the SUTA tax, you will need to take your SUTA tax number and subtract that number from your FUTA Tax that you calculated.

Above, we calculated your FUTA tax to be $420, and your SUTA tax to be $350. You just need to now take $420 – $350 and the result will equal to $70 of FUTA tax owed to the IRS.

We’re Done!

So, to recap what we learned today, it’s important to know what your SUTA tax information is first; in order to know the tax credit you will be getting back from your state department of revenue. Take your SUTA tax credit and subtract that from your FUTA tax to determine how much you will really owe to the IRS for the FUTA tax.

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