Running your own business comes with a lot of considerations that all fall on you, including unemployment insurance and the tax that funds it. Your understanding of these areas most likely depends on your level of experience and how long you’ve been running your own business. Here’s a brief overview to explain what you need to know about federal unemployment tax liability.
What is FUTA?
First and foremost, you need to know about the Federal Unemployment Tax Act or FUTA. Introduced in 1939, FUTA was created in response to the Great Depression, where a quarter of the country’s workers were unemployed. This initiative was pioneered as part of the Social Security Act by President Franklin D. Roosevelt.
After the struggle for so many to find work and support their families, it was clear insurance was needed to assist those out of work at no fault of their own. Through FUTA and SUTA, the act at the state level, this was achieved.
How is it determined?
While it is a federal tax, it’s not one the employees see. It’s a tax the employer pays exclusively, based on several factors. The current tax rate is 6 percent and imposed on the first $7,000 paid to each employee.
The money then goes into an insurance fund that can assist employees who are laid off or let go at no fault of their own. The state levels vary across the country, and other factors can affect its rate. For example, the more employees who are seeking and receiving UI claims in a year, the more you may pay in to cover the perceived increase in need.
Who is required?
There are two basic tests to determine if you need to pay the FUTA tax. The first is you pay at least $1,500 in wages to your employees during a calendar year, and second, you have at least one employee working a day over 20 different weeks. Even if you don’t foresee a need to let an employee go based on your business, it’s likely you still fall into one of these two categories.
Can you adjust how much you pay?
On average, more than 10 percent of all unemployment insurance charges are overpaid. Whether it’s because you’re paying people who don’t qualify or not monitoring their status closely enough, you may be overpaying claimants. In turn, this increases your rates year over year. Fortunately, there’s a solution.
Unemployment Tracker provides a full range of solutions designed to meet your business’s needs, whatever they are. It doesn’t matter if you’re looking for a software to help monitor or a full-service alternative, Unemployment Tracker has the option for you. Request a live demo today to see how it can help your business!