In this paperwork, I am going to demonstrate my understanding about Federal Unemployment Tax Act. I will start by defining the phrase Federal Unemployment Tax Act. The Federal Unemployment Tax Act is defined as the innovative legislation that permits the federal government to tax companies with staffs with the objective of collecting revenue that is owed to state unemployment agencies and paid to unemployed workers who are entitled to maintain unemployment cover. Employers are required by the Federal Unemployment Tax Act to file IRS Form 940 yearly in combination with paying this tax (Instructions for Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, 2000).
Through a literature review, it is depicted that the Federal Unemployment Tax Act was legislated in the year 1935 during the great depression as part of the communal security act of 1935. Research has it that, the president, Franklin D. Roosevelt, was quoted saying that the unemployment insurance part of the legislation would not only assist to safeguard the personality in prospect periods of dismiss against reliance upon liberation, but it would , by supporting purchasing authority, cushion the upset of economic suffering. I can, therefore, say that the president, Franklin D. Roosevelt, contributed in the formation of FUTA tax (Dan, 2002).
Why was the Federal Unemployment Tax Act initiated is a question that I will be handling in this paperwork. It is important to note that the Federal Unemployment Tax Act was initiated so as to finance all administrative operating expenses of the state unemployment insurance scheme and the federal overheads drawn in comprehensive reimbursements. Through a literature review, it is depicted that the FUTA tax is salaried by employers to finance the joblessness account of the federal regime, which pays workers who go away unwillingly. It is only the employer who pays FUTA tax; but the FUTA tax is not subtracted from the employee’s earnings. It has been noted that most employers pay both the Federal and the state unemployment tax (Dan, 2002). Currently, unemployment Insurance (IU) plan that is directed by the U.S .Department of Labor and administered independently by states, maintains the thought that staffs who mislay their professions through no blunder of their own should not become itinerant, penniless, and famished. It is, therefore, important to note that the thought of a society protection net to aid out-of-work inhabitants while they look for employment remains in the mind of FUTA. It is a fact that the tax revenues increases during the time of good economic, hence resulting to the enlargement of FUTA, due to under-utilization. It is also important to note that the economic situations may be worse at some time, during recessions, but the presence of the FUTA tax program play a vital role in easing the situation, since the employers can access the fund to pay unemployed workers. The FUTA program has many responsibilities to accomplish leave alone assisting unemployed people with necessities of life, such as acting as an economic stabilizer. I can, therefore, say that the FUTA program help play a significant role in making sure that the economy of a nation does not fall down.
In order to increase the efficiency of the FUTA tax, some programs have been added to FUTA, for example, the extended benefits (EB) added in 1970 and later revised extensively in 1981. The extended benefits program offers comprehensive unemployment reimbursements to jobless staffs in states where unemployment is severely lofty. It is important to note that, by helping the unemployed lot, we end up reducing incidences of crime, since the unemployed have something in their pockets to keep them moving. The additions of numerous programs in the FUTA tax have helped, a lot, in making sure that the program is both relevant and up to date. In some situations, the state may be experiencing predicament, hence resulting to the federal government authorizing the extended benefits payments to all states. The state that receives experience bankrupt unemployment programs can obtain federal loans from the FUTA fund in an attempt to stabilize its financial conditions (Employer’s Annual Federal Unemployment (FUTA) Tax Return, 2001).
I am now going to focus on how the FUTA tax is calculated and how it routinely stops when the boundary is attained.
As I mentioned earlier, in this paperwork, that that the federal Unemployment Tax Act (FUTA) is a payroll tax remunerated by employers on member of staffs earnings. It is also important to understand that the tax is 6.2% on the initial $7,000 made by a worker and any earning exceeding $7,000 is not taxed. Through a literature review, research has it that the definite proportion remunerated is typically 0.8%, since the employers obtains a tribute of up to 5.4% for any state joblessness taxes they disburse (6.2%-5.4%=0.8%). It is also noted that, after June 30, 2011, the FUTA tax lessened to 6.0%, implying that the business owner was liable to pay 0.6% for the credit for state joblessness taxes, whereby, small business vendors were to get the complete 5.4% tribute. It is important, for all employers, to make sure that the state joblessness tax regulations are met, so as to enhance eligibility when conducting the FUTA tax calculations.
It is important to note that; Insurance premiums, mileage reimbursement, and other trimming benefits are freed from FUTA taxes, hence do not calculate towards the $7,000 foundation.
Other cases that can result to the exception from the FUTA taxes include the family members setting. It is important to note that certain family members can be excused from the FUTA taxes, such as the parents employed by the children, the children employed by the parents, and the spouses employed by the spouses can be excused depending on the type of company owned. It is, therefore, important to note the fact that, not all employers are entitled to pay the FUTA tax.
The IRS, too, needs companies to disburse FUTA taxes quarterly, however, for small businesses this might not be essential, since the IRS, only, requires a disbursement if the FUTA taxes billed are more than $500. In cases, whereby, the taxes are less than $500, which is typically the case for numerous undersized businesses, then the balance is forwarded to the next quarter. The process carries on until the $500 in taxes is billed (Employer’s Annual Federal Unemployment (FUTA) Tax Return, 2001). Through a literature review, I have come to learn that it is a requirement by the federal unemployment tax act to file Form 940 at the conclusion of the year. By the side of with this form, any FUTA taxes billed must be remunerated. The form is due January 31 of the following tax year. As I said earlier in this paperwork, it is important to keep in mind that FUTA taxes are remunerated by employers and nothing is subtracted from the worker’s paycheck. The implementation of FUTA tax has played and continues to play significant roles when it comes to meeting the needs of the unemployed lots. I, therefore, recognize and appreciate the work of all those members who were involved in coming up with this commendable program. To all those states that have adopted the FUTA tax program; they should know that they are in the right path towards the realization of a safe and a healthier society that is mindful of all its citizens (Dan, 2002).
Works cited
Employer’s Annual Federal Unemployment (FUTA) Tax Return, Form 940-EZ, 2000. S. I.: s. n.,
2001.Print.
Employee’s duties under the Social security act and the Federal insurance contributions act and
the Federal unemployment tax act. Washington, D.C.: Federal Security Agency, Social Security Board, 1945.print.
Sitarz, Dan. Small business accounting simplified.3rd ed. Carbondale, 1II.: Nova Pub. Co., 2002. Print.
