 Hello and welcome to this session in which we will discuss the federal unemployment tax act or known as FUTA. Now, you cannot talk about FUTA without discussing its sister or its daughter, SUTA. SUTA is the state unemployment tax act. Why are they related? Well, they are related because when you lose your job for a fault that's not your own, you'll be able to collect money from an insurance program, state insurance program for a period of time. Well, that state insurance program is called SUTA, but FUTA is what administers SUTA and we'll see what does that mean in a moment. But this is the basic idea. So when I get unemployed, where does that money come from? We'll talk about that. But before we start, I will need to remind you that if you are an accounting student or CPA candidate, I strongly suggest you check out my website, farhatlectures.com. I don't replace your CPA review course. I can be a useful addition, explaining the material differently. You can add 10 to 15 points to your CPA exam. Your risk is one month of subscription, your potential return. If you give me a try, pass on the CPA exam. And if not for anything, take a look at my website to find out how well your university is doing on the CPA exam. I do have resources for other college and universities as well. If you haven't connected with me on LinkedIn, please do so. Please like this recording, share it with others. It doesn't cost you anything. Connect with me on Instagram, Facebook, Twitter, and Reddit. So what is the Federal Unemployment Tax Act is all about? Well, each state, now we're going to go from federal to state. So notice that's why I said we have to talk about the state, is required to have an unemployment compensation program. Simply put, if you lose your job, you'll be able to collect. It's a social safety net. Now the federal government administered the program and this program started as part of the Social Security Act of 1935. So in a sense, it's also FICA is also part of the Social Security Act. So it's all part when the government was trying to get the country out of the Great Depression, trying to create those social net. Now the first thing you want to know about this program is employers. The company, employers means the company fund this program. The company pays into this program, not the employee. Now put a small abstract here to remind you that in some states in Pennsylvania, which is my state, one of them, you pay a small amount, a very small amount of your paycheck to that program. But generally speaking, the employer, your company funded this program. So it doesn't come out of your paycheck. When would your employer have to fund this program? Well, as long as you're not a farm worker or a household worker, you are subject to FICA if the company either have one of the criteria is one of them paid wages of 1500 or more in any calendar quarter in the current or preceding year. Now, you know, you have to worry about, or you had one or more employees, okay, for at least some part of the day, one or more employees in any of the 20 or more different weeks, either in 2019 or 2020. The reason I'm specifying the years because I'm doing this recording in 2021, so it gives you an idea what we are discussing. But the point is this would apply to any future years. Now, how much would the employer have to pay? So what is the employer share? What's the employer expense? Well, here we go. The rate is 6.0%. Okay, this is the footer rate. This is the footer rate wages up to $7,000. Simply put, let's assume you get paid $2,000 a month to make it easy. We have January, February, March and April. So the first month you got paid $2,000 per month. The following month you got paid $2,000 per month. The third month you were paid $2,000 and in April you were paid $2,000. So notice what's going to happen. The first $2,000 you're subject to footer. Why? Because you did not reach $7,000. The next $2,000 you also are responsible for footer. The employer, when I say responsible, the employer is responsible for paying footer because the employee did not reach $7,000. March, the employee already paid $6,000. They still pay footer. In April, the employee got, they got paid $2,000. They paid the employee $2,000. $1,000 will be subject to footer of that $2,000 because this additional $1,000 will make a total of $7,000 and the other $1,000 will be footer free. And any future payment for this employee will not require the company to make any footer payment for the rest of the year. Now, if this individual switch companies, then the other company will start to pay footer again, but we're assuming with one company. Assuming you are working with one company. This is what we, what I mean by wages up to $7,000. So only the first $7,000 are subject to wages. And what's the rate? Six, 6%. But don't worry, we're going to change this rate in a moment. Let's assume the company pays their state rate. Remember, there is a footer rate and there's a suit rate, which is we don't care about the suit rate because the suit rate is different for each state. This is a state. Now, you pay the federal, you're supposed to pay the federal government 6%. But if you pay your suitor, which is your state unemployment rate, then if you do, if you do pay it on time, if you make your payment on time and you are considered to be in good standing, then guess what? The 6%, the federal government would say we're going to forgive you by 5.4. So simply put your net rate for footer is 0.6%. So this is your net rate for footer, 0.6%. Now, what happen if you are late? So in other words, if you are not in good standing, you are submitting your deposit late to the state government. Well, guess what? Then your credit is limited to 10% of the amount of deposit that would have been have given a credit. So simply put, if you don't make your payment to the state properly, then the federal government will not give you the full 5.4%. They're going to take away some of that. They're going to take 10% of the credit. Now, let's take a look at an example to see how this work. Adam Company has a state wages of 100,000 that are subject to SURA, but did not make timely deposit for SURA. So Adam is not in good standing with the state. Okay, what's going to happen is this. Adam will say, okay, my federal rate is 100,000 times 6%, that's 6,000. Then what's going to happen is this. I'm going to lose 90% of my rate. Well, my credit is 5.4%. This is what the federal government is going to give me. I'm going to be losing 9%. So I'm going to be keeping 90%. So let's find out what that rate is. So let's get the calculator. So if I take 5, well, let's do it percentage 0.5054 times 0.9. What's left is 4.86, 4.86%. So rather than getting a credit of 5.4, the federal government, it's going to give me a credit of 4.56. So less 90% of the credit, so 4,860. So what I'm going to pay for now is 1,100 and $1,140. This is what I'm going to have to pay for it. Now, that's just what I made my payment on time. If I made my payment on time, I'm going to only pay 600, which is 100,000 times 0.6. So this is 0.6, 0.006. This is 6%. So don't confuse 0.6 with 6%, okay? Don't confuse 0.6 with 6%, okay? So this is what I end up paying. I end up paying Adam Company because they're not in good standing. They end up paying 1,110. Now we can compute, if you want to go a little bit further, you can compute what was their, really what was the rate, what was their footer rate, what was their footer net rate, 1,140 divided by 100,000. They end up paying 1.14%. So the rate is 1.14%, which is if they paid on time, it would have been 0.6. It's very simple. You're not making your payment. The federal government, it's not going to be nice to you. If you're not making the payment to your state, and the state will tell the federal government, by the way. And anyway, on the form, they will ask you whether you are in good standing or not. And I used to do these forms. Again, just like I told you, I used to do a lot of 941 for FICA. FUDA is the same concept. Well, if you're doing 940, you have to do 941. If you're doing 941, you have to do 940. They're both. If you have a company that you are paying Social Security, you're going to have unemployment tax as well. So I used to be very familiar with those four. Let me make myself clear because I haven't completed those four over 10 years, but they're practically still the same, okay? FUDA are deposited quarterly with an authorized depository. If the tax is for a quarter, usually you put them in a bank account. Plus, undeposited taxes from the prior quarter exceeds $500. Then you can submit your payment on EFTPS. We looked at the EFTPS briefly in the prior recording. It's basically, it's a treasury website where you can make your payment. You can make the payment for FICA, SS, FICA SS, FICA Medicare federal, and you could also make your FUDA payment using the EFTPS. But you have to be very careful. You have to specify that you are paying for FUDA. The employer must record that the tax paid is for FUDA and indicate the quarter to which the payment applies. You have to tell the EFTPS. Otherwise, they will take your money and they will assume it's for your 941 for FICA. Okay, so you have to tell them exactly. When is the deposit due? The deposit is due no later than the last day of the month following the end of the quarter, following the end of the quarter. Now, let's take a look at an actual 944, which is an annual federal unemployment. So at the end of the year, you have to fill out the annual federal unemployment. There's a mistake here. We'll talk about it in a moment. Let's assume Boom Company, this is their address, had three employees who were paid the following amount during 2020. And we're going to see the amount. Assume that Boom pay state unemployment as entitled to the maximum credit of 5.4. It means they are in good standing. Therefore, their federal unemployment rate is 0.6. And this is the data that we are giving. Theodore was paid 3,000. Ursula was paid 28 and Vanessa 51. Now, the first thing we have to do, we have to add their total payments. That's what they're asking us first, calculate the total payments. The total payments, if I added them correctly, and I did add them correctly, they differ from what's on the form. So if we take, let me see, this is 31, 31, it's 82,000. So the total wages, this should be 82,000. Payment exempt from food, or there's no payment exempt from food now. If there's any fringe benefit, anything like this, we're going to assume nothing. Total payment made to each employee in access of 7,000. Now, we have to compute this line five. And this is not tricky. You have to know how to compute it. Remember, only the first 7,000 are subject to food. So simply put Theodore, the whole 3,000 is subject to food. Ursula, she was paid 28,000. Remember, of this amount, only 7,000 is subject to food. 21,000 is not subject to food. So those are payments made in access of 7,000. For Ursula, it's 21,000 for Ursula. For Vanessa, she was paid 51,000. We have to take out 7,000. 51 minus 7 is 44. Again, 44 for Vanessa, not subject to social security, to food. So 21 plus 44 equal to 65. And this is where this number 65 coming from. So you paid in total 82,000 in wages. 65,000 of those, 65,000 of those 82,000 are not subject to food, because they're in access of 7,000. So notice Theodore, because they were only paid 3,000. All Theodore's wages were subject to food. Now, subtotal line four, five, six, we only have number in line five, that's 65,000. Now, taxable food wages, we'll take the total minus 65, we'll give us 17. So those are the wages subject to food. We're going to multiply this by 0.006, which is the rate. And you have a bill of $102 for food. There's going to be no adjustments, total food adjustments. There's no adjustments. Your payment, a total food after adjustments is 102. And balance due, let's assume you made no deposits, balance due is 102. Therefore, you have to fill out a form. I believe it's called V940. You could send it or you can go to EFTPS and make the payment, make the payment. So this is basically how food work. Remember, it's no later than January 1st. This form is due, which is a month after year end. You remember, this is an annual federal unemployment form. This is just an informational form. Again, at the end of this recording, I strongly suggest you visit farhatlectures.com if you are an accounting students or CPA candidate, as I have material for many courses, not just this course. Also, if you're studying for your CPA exam, I don't replace your CPA review course. I can be an alternative explanation, a backup explanation. Study hard, good luck, and most importantly, stay safe.