Phooey on FUTA

Today TaxMama hears from Terri in the TaxQuips Forum with a question. “I am a California business. Each year we did an annual return for Federal Unemployment tax (FUTA) taxes as a reconciliation for the payments we make each quarter.  We did the same annual return for CA SUI.  Beginning in 2011 The State of California requires us to report the CA State Unemployment (SUI) payments quarterly with our personal income tax withheld and state disability.  Has the reporting stayed the same for the Federal Unemployment Tax Return?”

Hi Terry,

Nothing has changed for IRS. In fact, I don’t think anything really changed for EDD, either. Your payroll probably increased.

Bear in mind that even though FUTA wages are limited to $7,000, There’s a big difference between IRS and California’s EDD. You may have noticed that your FUTA rate for IRS is .8% (or .008). That amounts to a maximum cost of only $56 per employee, per year.

However, EDD’s SUTA starts around 4.5% and goes up. That’s over 5 x the IRS rate. So each employee costs you over $300 per year.  California has a lot at stake. Especially in a tough economy with such a high unemployment rate. The unemployment they are paying out has to come from somewhere.

 As your wages and the number of employees in your business increase, you find yourself paying much more money in SUTA, so California wants it before you end up spending it. Believe it or not, that’s a common practice with small employers – spending the payroll money instead of paying it in. Not that you would ever do that, of course!           

And remember, you can find answers to all kinds of questions about employer taxes and other tax issues, free. Where? Where else? At www.TaxMama.com.

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!] 

Please post all Comments and Replies in the new TaxQuips Forum .

Leave a Reply