Do you employ workers in the state of Florida? All Florida business owners will be faced with the inevitable question regarding payroll: What is FUTA and SUTA tax and why am I being charged for it.
The devil is in the details and when it comes to payroll this couldn’t be more indicative of the employer related taxes that surface and are occasionally unaccounted for by first time business owners. FUTA (Federal Unemployment Tax) and SUTA (State Unemployment Tax) are employer related taxes that employers are required to match and withhold from the wages they pay their employees. In this article, we will dive into the wonderful world of unemployment taxes… so hold on tight, it’s going to be a doozy!
Let’s start by addressing the Federal Unemployment Tax as assigned by your dearest uncle… Uncle Sam. Federal Unemployment Tax (FUTA) is federally mandated and consistent across all 50 states. FUTA is assessed to gross payroll wages at a rate of 0.6%. This marginal tax is also capped at the first $7,000 that an employee makes. By applying some complex calculations, we can extrapolate that Federal Unemployment Tax will be equivalent to $42 annually, per employee if the employee makes at least $7,000 in a tax year.
Federal Unemployment Tax is calculated and paid quarterly by businesses via the Electronic Federal Tax Payment System (EFTPS) and reported annually to the IRS on form 940. This is commonly confused with the 941 form which is reported quarterly by the employer when depositing the federal tax withholding on behalf of their employees. A painless way to avoid quarterly EFTPS deposits and 941 filings is to utilize a payroll company or a PEO to have FUTA tax calculated and paid each pay period automatically. This allows business owners to steer clear of the headache that occurs every 3 months when the unemployment tax is due.
State Unemployment Tax is a whole different animal… and a more aggressive animal at that. SUTA is also assessed quarterly and only applicable to the first $7,000 of an employee’s gross wages. However, it is set by the state that your business is domiciled in and it varies from state to state. Florida has recently re-branded this as Re-Employment Tax and sets the rate for new business owners at 2.7%. Although the State Unemployment Tax is also paid quarterly, it is reported on a separate form. Unlike Federal Unemployment Tax, the RT-6 is used to report SUTA in the state of Florida. Keep in mind that payroll companies and PEO’s again save the day when it comes to reporting and calculating SUTA costs. Business owners can avoid SUTA payments on a quarterly basis, by reporting and paying on a per-payroll basis through these services.
It’s also important to note that while new businesses in the state of Florida are set at a 2.7% SUTA rate, companies that have employed workers for years without unemployment claims will have their rates discounted. However, the opposite is also true for those companies with high turnover because the SUTA rate will increase for companies that have unemployment claims. Usually when this is the case, businesses with high turnover will seek the services of a PEO so that they can significantly reduce their inflated SUTA rates. Additionally, companies with routine turnover such as restaurants, will utilize a PEO for a blended SUTA rate. This allows companies who are constantly paying SUTA, usually because their employees don’t reach $7,000 in wages before hiring a new worker, to pay a blended percentage rate. These blended rates include SUTA at a fraction of the cost, but they don’t cut off at the capped waged basis.
For more information on how to save on payroll taxes and the services that may be available (which we highly recommend), reach out to SmartComp Solutions for a complementary consultation. Please also remember that this article should not be construed as legal advice or tax advice.
SmartComp Solutions, Inc. is an independent company assisting clients with Payroll Services, Workers Compensation Insurance, Human Resource Management, and Employee Benefits. Although we are based in Florida and have many local partners in the Tampa Bay area, our reach is national and we serve clients in all 50 states. SmartComp Solutions, Inc. was founded on the principle of providing sensible solutions for employers to efficiently manage their workforce. Our goal is to eliminate the administrative burden of running a workforce so that business owners can focus on the revenue generating aspects of their company that they enjoy.
The purpose of this blog is to present general information only. It does not interpret specific Insurance policies or Insurance coverage, nor is it intended to offer legal or tax advice. To obtain detailed information regarding your insurance, legal, or tax matters contact a licensed and accredited professional.