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Federal Unemployment Tax Act (FUTA)
The Federal Unemployment
Act (FUTA) is a United States federal
imposing a federal employer tax that is used to help fund state workforce agencies. Employers are required to report this tax by filing an annual tax form (940) with the
Internal Revenue Service
(IRS). Below are some of the most commonly asked questions about the Federal Unemployment Tax Act answered by the Experts.
When individuals own an S Corporation with each having a fifty percent share, can they pay each other as partners instead of employees?
In most cases an S Corporation owners would be required to pay themselves a salary that would need to be reported on a W-2. Since the IRS code specifically includes corporate officers within the definition of employees it would be hard to interpret it any other way. This link may help in this matter:
If an individual hires their 15 year old child, and they do not want to be subject to Social Security withholdings; what are the proper channels to follow in order to test the limits of this?
If a child is under the age of 18 they are not subject to Social Security and
taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child. Payments for the services of a child under the age of 21 who works for their parents in a trade or business are not subject to FUTA tax; however these payments are subject to
regardless of age. But the wages for the services of a child related or not are subject to income tax withholdings as well as Social Security, Medicare, and FUTA taxes if the child works for a corporation, a partnership (unless each partner is a parent of the child), or an estate, even if it is the estate of a deceased parent. This publication could be some help in regards to this matter:
What are unemployment taxes and who pays it?
The Federal Unemployment Tax Act (FUTA) combines with state unemployment systems to provide unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax, also the employer pays FUTA tax; these taxes are not withheld from the employee’s wages.
Do shareholders need to take a salary on an S-Corporation?
In many cases corporate officers are included within the IRS’s definition of an employee, and when corporate officers perform services for the corporation they receive or are entitled to receive payments, and then their compensation is generally considered wages. If a corporation distributes
without paying reasonable wages to its officers they would risk being targeted for an audit.
On the state of Texas’s IRS form 940, are the FUTA tax liabilities on line 16 paid to the Texas workforce commission?
Typically the in the state of Texas the quarterly unemployment taxes are sent into the Texas Workforce Commission on the state level. While the FUTA payment is paid annually to the IRS on the federal level. The state fund is used chiefly to pay claims, and the federal fund pays, among other things, for the operation of the field offices of state Employment Security system, and the Labor Department or Workforce Commission.
In certain cases an employer can be required to pay the IRS installments during the tax year. FUTA also covers a large share of the costs of unemployment insurance along with job service programs in every state. The information provided above about the Federal Unemployment Tax Act can be an important tool for some individuals, but can also open the door for many other questions that need to be answered by the Experts.
Recent FUTA Questions
I live in New Jersey and own an S-Corp based in the same state.
I live in New Jersey and own an S-Corp based in the same state. I am the owner and there are no employees. My health insurance was purchased by me personally as no companies (that I know of) will sell a company group plan for only one member. Annually, this costs about 10K. In past years, I would write my own personal checks to pay for the insurance premium and my company would write checks to me every month as reimbursement.
On form 1120S, page 1, Line 19, my accountant has been typically writing this full amount off as an other deduction, calling it "Health Insurance". My W2 was not affected.
In Quickbooks Online/Payroll, I see a payroll item for 'S-corp owner health insurance'. I have begun to use this method to include the monthly amount of the insurance premium. I then wrote checks directly from my company to the Health Insurance company. When I look at checks that I have issued on the past couple of months, I see a line item for this payroll item (although the actual check is not increased).
At the end of this year, I'm expecting that I won't be including this as a Line 19 Other deduction. I'm also expecting that my W2 will be about $10K larger and that I will be reporting this on my personal taxes when I include my K1 and NJ-K1, claiming the deduction at that point.
My goal in all of this is to handle health insurance properly. With recent adjustments to health insurance reimbursement, I didn't want to be in a position to be fined.
1. Does my new course of action sound like the way to go?
2. Do you have any recommendation or adjustments?
I live in California. My mother babysits my daughter in my
I live in California. My mother babysits my daughter in my apartment. I believe that would make her a household employee. I am planning to pay her $5000 a year.
According to publication 926 - Wages paid to parent are exempt from FICA and/or FUTA. Do I still issue a W2 to my mother? I don’t believe I have to since there are no state or federal taxes owed. Can you clarify?
On my 1040 - I will deduct child & dependent care expenses and show grandma SS# ***** paid to.
On my mother's 1040 (grandma) - I will include the wages ($5,000) as HSH wages not reported on a W2. Will be okay even though the amount is more than $1,900?
I want to hire an intern as a half-time employee but am unsure
I want to hire an intern as a half-time employee but am unsure how to do the withholding. He is here on an F-1 visa and has permission to work for my company.
Please advise -
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